Greetings,

This issue has a couple of tax tips plus the new payroll tax rates for 2005. Also a reminder, if you would like to do some tax planning before the end of the year, please contact me immediately.

Our office will be closed on December 24th and December 31st for the holidays. In addition, I will be out of town for the week between Christmas and New Years. Sandi will be holding down the fort.

Here are the tax tips:

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Some Year-End Retirement Plan Reminders

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Retirement plans are one of the best ways to cut your current tax bill while you put money away for your retirement years. Here are some year-end reminders.

1) Time is running out for 2004 contributions to 401(k) plans. This year you can put up to $13,000 in your 401(k); if you’ll be 50 or older by December 31, that limit increases to $16,000.

2) If you have a SIMPLE retirement plan, the 2004 contribution limits are $9,000 if you’re under 50 and $10,500 if you’re 50 or older.

3) IRA contribution limits for this year are $3,000 for those under 50 and $3,500 for those 50 and older.

4) If you’re over 70½ years old, you generally have to take a minimum distribution from your IRA by December 31. If you just turned 70½ this year, you can either take your first required minimum distribution by December 31, or you can wait as long as April 1, 2005, to take the first distribution. Keep in mind that if you wait, you’ll have to take two distributions in 2005. Unless you’re still working, these rules also apply to other retirement plans (such as 401(k)s). Note, however, that no distribution requirements apply to Roth IRAs.

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You can deduct many expenses even if you don’t itemize

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Just because you don’t itemize your tax deductions doesn’t mean you can’t deduct anything on your tax return. Actually, there are a number of deductions and credits that you can use to reduce your taxes. Some are subject to income limits or other restrictions, so do the planning necessary before year-end to secure your eligibility for these tax-cutters.

Whether you itemize deductions or not, you can take a deduction for alimony paid, student loan interest paid, a penalty paid for early withdrawal of savings, classroom supplies you buy if you’re a teacher, college tuition paid, contributions to your retirement plan, expenses paid for a job-related move, self-employment taxes paid, and health insurance if you’re self-employed.

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2005 Payroll Tax Rates

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FICA wage base for 2005 - $90,000

Medicare wage base for 2005 - no limit

The FICA rates for 2005 remain the same.

SDI wage base for 2005 - $79,418

SDI rate for 2005 - 1.08%

Maximum SDI - $857.71

For more information about deductions you can take to cut your taxes, or for assistance with your 2004 tax planning, give our office a call.

Linda