For details on the changes for 2004 and 2005 see Pub. 553.

What's New for 2004

Health savings account (HSA) deduction. You may be able to take a deduction if contributions (other than employer contributions) were made to your HSA for 2004. See Form 8889 for details.

Tuition and fees deduction expanded. You may be able to deduct up to $4,000 if your adjusted gross income (AGI) is not more than $65,000 ($130,000 if married filing jointly), or deduct up to $2,000 if your AGI is higher than that limit but not more than $80,000 ($160,000 if married filing jointly). See the instructions for line 27 on page 29.

Sales tax deduction. You can elect to deduct state and local general sales taxes instead of state and local income taxes as an itemized deduction on Schedule A. Generally, you can use either your actual expenses or the Optional State Sales Tax Tables to figure your state and local general sales tax deduction. See the Instructions for Schedule A for details.

Income averaging for farmers and fisherfiguring men. Fishermen can elect to use income averaging on Schedule J to reduce their tax. Also, the benefit of income averaging is extended to farmers and fishermen who owe the alternative minimum tax. See the Instructions for Schedule J for details.

Unlawful discrimination claims. You may be able to take a deduction on line 35 for attorney fees and court costs paid after October 22, 2004, for actions settled or decided after that date involving a claim of unlawful discrimination, a claim against the United States Government, or a claim made under section 1862(b)(3)(A) of the Social Security Act, but only up to the amount included in gross income in 2004 from such claim. See Pub. 525 for details.

Tax Computation Worksheet. If your taxable income is $100,000 or more, you will now use the Tax Computation Worksheet instead of the Tax Rate Schedules to figure your tax. The Tax Computation Worksheet is on page 72. The Tax Rate Schedules are shown on page 76 so you can see the tax rate that applies to all levels of taxable inamount come, but they should not be used to figure your tax.

IRA deduction allowed to more people covered by retirement plans. You may be able to take an IRA deduction if you were covered by a retirement plan and your modified AGI is less than $55,000 ($75,000 if married filing jointly or qualifying widow(er)). See the instructions for line 25 that begin on page 26.

Certain business expenses of reservists, performing artists, and fee-basis government officials. These expenses are now reported on line 24. See the instructions for line 24 on page 26.

Earned income credit (EIC). You may be able to take the EIC if:

• A child lived with you and you earned less than $34,458 ($35,458 if married filing jointly), or
• A child did not live with you and you earned less than $11,490 ($12,490 if married filing jointly).

If you were a member of the U.S. Armed Forces who served in a combat zone, you may be able to include your nontaxable combat pay in earned income when figuring the EIC.

See the instructions for lines 65a and 65b that begin on page 41.

Additional child tax credit expanded. The credit limit based on earned income is increased to 15% of your earned income that exceeds $10,750. If you were a member of the U.S. Armed Forces who served in a combat zone, your nontaxable combat pay counts as earned income when figuring this credit limit. See Form 8812 for details.

Standard mileage rates. The 2004 rate for business use of your vehicle is 371/2 cents a mile. The 2004 rate for use of your vehicle to get medical care or to move is 14 cents a mile.

Qualified tuition program (QTP) distributions. You may be able to exclude from income distributions from a private QTP if the distributions are not more than your qualified higher education expenses. See Pub. 970.

Elective salary deferrals. The maximum amount you can defer under all plans is generally limited to $13,000 ($16,000 for section 403(b) plans if you qualify for the 15-year rule). The catch-up contribution limit increased to $3,000 ($1,500 for SIMPLE plans). See the instructions for line 7 on page 19.

Excise tax on insider stock compensation from an expatriated corporation. You may owe a 15% excise tax on the value of nonstatutory stock options and certain other stock-based compensation held by you or a member of your family from an expatriated corporation or its expanded affiliated group in which you were an officer, director, or more-than-10% owner. See the instructions for line 62 on page 40.

Mailing your return. You may be mailing your return to a different address this year because the IRS has changed the filing location for several areas. If you received an envelope with your tax package, please use it. Otherwise, see Where Do You File? on the back cover.

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