Legal News Alert #111

Personal Income Tax Rates for 2004

Although you have probably just sent in your return for 2003, it is not too soon to start thinking about 2004. Below is a chart of the personal income tax rates for 2004.

*2004 maximum tax on most long-term capital gains and qualifying

Dividends:

• 10 - 15% tax bracket = 5%
• Higher tax bracket = 15%

Personal Exemption and Standard Deductions

Note: A dependent claimed on an individual's return may not claim a separate exemption on his or her own return. Exemptions are phased out when adjusted gross income (AGI) exceeds certain threshold amounts.

*The 2004 additional standard deduction for each married taxpayer over age 65 or blind is $950 and $1,200 for single taxpayers. If the taxpayer is both blind and 65 or over, these amounts are doubled.

If an individual is claimed as a dependent on another's tax return, the maximum standard deduction that individual may take in 2004 is the greater of $800, or the amount of earned income, plus $250, up to the standard deduction amount.

Itemized Deductions*

*Total itemized deductions other than those for medical expenses, casualty and theft losses, and investment interest are reduced by an amount equal to 3% of a taxpayer's adjusted gross income above $142,700 ($71 ,350 for married persons filing separately), not to exceed a total reduction of 80% of these itemized deductions.

Individual Retirement Accounts (IRAs)

$3,000 maximum. An individual cannot contribute more than $3,000 to all retirement IRAs (Roth and deductible/nondeductible IRAs). (The limit is increased to $3,500 for individuals who reach age 50 before the end of the plan year.)

IRA Deduction Phaseouts

Regular IRA Deduction Phaseout

IRA deduction phaseout for active participants in qualified plans:

An IRA deduction phaseout for a spouse (who is not a participant in a qualified plan) of an active participant in a qualified plan is between $150,000 and $160,000 AGI.

Roth IRA Phaseout

Individuals may make up to a $3,000 (or $3,500 if 50 or older) non-deductible contribution to a Roth IRA. The maximum contribution to a Roth IRA is phased out for individuals with AGI between $95,000 and $110,000 and joint filers with AGI between $150,000 and $160,000.

Coverdell Education Savings Account

Regular IRA Deduction Phaseout

IRA deduction phaseout for active participants in qualified plans:

*Contribution is not coordinated with retirement IRAs.
** Maximum per beneficiary not per contributor.

401 (k) Contributions

The maximum contribution to a 401(k) plan for the year 2004 is $13,000 or $16,000 for individuals who reach age 50 before the end of the plan year.

Maximum Retirement Plan Allocations to Individuals

*Based on self-employment earnings before contribution on behalf of owner but after deduction of one-half of self-employment tax.
** Deduction limited to 25% of total eligible compensation. Note: Maximum compensation taken into account per participant is $205,000 for 2004.

Social Security

2004 Social Security Rates

Note: Maximum 2004 taxable wage base is $87,900.

The Medicare portion of the Social Security payroll tax applies to all wages. The Medicare portion is 1.45% each, for employee and employer, and 2.9% for self-employed.

Self-employed taxpayers may deduct one-half of their self-employment tax for federal income tax purposes, as well as for purposes of the self-employment tax.

Maximum Annual Earned Income Limit

Social Security benefits start to reduce when earned income exceeds the following amounts:

NICHOLS & EBERTH, P.C.
22374 Garrison, Dearborn, MI 48124

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