Here’s a quick rundown of recent IRS activity.
Here’s a quick rundown of recent IRS activity.
1. Flex accounts can pay for over-the-counter drugs. The IRS will now permit taxpayers with flexible spending accounts and other employer health reimbursement plans to use those funds to buy over-the-counter drugs such as aspirin, flu medications, allergy pills and cold medicines. Over-the-counter drugs still will not qualify as itemized medical deductions.
2. Mileage rates increased for 2004. The standard mileage rate for business driving increased to 37.5 cents a mile, effective January 1, 2004. In other good news, the IRS will now permit businesses to use the standard mileage rate if no more than four vehicles are used. Previously, a business had to keep track of actual expenses, such as gas, repairs and insurance, if more than one vehicle was used.
3. Tax numbers adjusted for 2004. Adjustments are made to many tax numbers each year – the result of tax law change and inflation. Among the changes that you need to factor into your tax planning for this year are the following:
– The top estate tax rate drops to 48 percent, and the amount exempt from tax increases to $1.5 million.
– The deduction for qualified higher education expenses increases to $4,000 this year, up from last year’s $3,000 maximum. For those with incomes too high to qualify for this deduction, a new $2,000 deduction for college expenses is available if income doesn’t exceed $80,000 ($160,000 for joint filers).
– The kiddie tax threshold increases from last year’s $1,500 threshold to $1,600 for 2004.
– The business equipment expensing limit increases to $102,000.
– Retirement plan contribution limits increase to $13,000 for 401(k)s and to $9,000 for SIMPLEs. With catch-up contributions, those 55 and older can contribute $16,000 to a 40l(k) and $10,500 to a SIMPLE.
For details or for assistance with any of your tax concerns, please contact our office.
Kerry Lorincz is a CPA and a partner with the accounting and business consulting firm of Bianchi, Lorincz & Company located in downtown Hollister.
