For details on the changes for 2003 and 2004 see Pub. 553.

What's New for 2004

Tax Rates Reduced.   The tax rates of 27%, 30%, 35%, and 38.6% have been reduced to 25%, 28%, 33%, and 35%, respectively. The 10% tax rate applies to the first $7,000 of taxable income (the first $10,000 of taxable income if head of household; the first $14,000 of taxable income if married filing jointly or qualifying widow(er)). These changes are reflected in the Tax Table that begins on page 62 and the Tax Rate Schedules on page 74.

Married People—Increased Tax Benefits.   The standard deduction for most joint filers has increased to $9,500 (twice that of single filers). For most people filing a separate return, the standard deduction has increased to $4,750 (the same amount as single filers). See the instructions for line 37 that begin on page 34.

Also, the 15% tax bracket for joint filers has been expanded to cover twice the income range as that of single filers. For people filing a separate return, the 15% tax bracket is the same as that of single filers. These changes are reflected in the Tax Table that begins on page 62 and the Tax Rate Schedules on page 74.

Qualifying Widow(er)—Increased Tax Benefits.   For most people, the standard deduction has been increased to $9,500 (twice that of single filers). See the instructions for line 37 that begin on page 34. Also, the 15% tax bracket has been expanded to cover twice the income range as that of single filers. This change is reflected in the Tax Table that begins on page 62 and the Tax Rate Schedules on page 74.

Child Tax Credits Increased.   You may be able to take credits of up to $1,000 for each qualifying child. But you must reduce your credits by any advance child tax credit payment you received in 2004 (see below). For more details, see the instructions for line 49 that begin on page 40.

Advance Child Tax Credit Payment.   You must reduce your 2004 child tax credits by any advance child tax credit payment you received in 2004 Enter the amount of any advance payment you received (before offset) on line 2 of your Child Tax Credit Worksheet. The amount of your advance payment (before offset) is shown on Notice 1319. This notice was mailed to you in 2004 If you do not have this notice, you can check the amount of your advance payment (before offset) on the IRS website at www.irs.gov or call us at 1-800-829-1040. For details on offsets, see Refund Offset on page 56.

If you received an advance payment but did not have a qualifying child for 2003 (see the instructions for line 6c, column (4) on page 21), you do not have to pay back the amount you received. Do not enter the amount of your advance payment on your return. If you filed a joint return for 2002 but for 2003 you are not filing a joint return (or a joint return with the same spouse), you are considered to have received one-half of the advance payment.

Dividends—New Tax Rate. The maximum tax rate for qualified dividends is 15% (generally, 5% for people whose other income is taxed at the 10% or 15% rate). See the instructions for line 9b on page 23. Use Schedule D or the Qualified Dividends and Capital Gain Tax Worksheet, whichever applies, to figure your tax. See the instructions for line 41 that begin on page 36.

Capital Gains—Maximum Tax Rate Reduced. The maximum tax rate for most net capital gain taken into account after May 5, 2003 has been reduced to 15% (generally, 5% for people whose other income is taxed at the 10% or 15% rate). Use Schedule D or the Qualified Dividends and Capital Gain Tax Worksheet, whichever applies, to figure your tax. See the instructions for line 41 that begin on page 36.

Alternative Minimum Tax Exemption Amount Increased. The alternative minimum tax exemption amount has increased to $40,250 ($58,000 if married filing jointly or qualifying widow(er); $29,000 if married filing separately). These new amounts are reflected in the worksheet for line 42 on page 38.

Archer MSA Deduction.   Archer MSA deductions are now reported on line 33. See the instructions for line 33 that begin on page 33.

Child and Dependent Care Credit Increased.   You may be able to take a credit of up to $1,050 for the expenses you paid for the care of one qualifying person; $2,100 if you paid for the care of two or more qualifying persons. See Form 2441 for details.

Earned Income Credit.   You may be able to take this credit if:

• A child lived with you and you earned less than $33,692 ($34,692 if married filing jointly) or
• A child did not live with you and you earned less than $11,230 ($12,230 if married filing jointly).

See the instructions for line 63 that begin on page 44.

Lifetime Learning Credit Doubled.   The maximum lifetime learning credit for 2003 is $2,000. See the instructions for line 47 on page 39.

Self-Employed Health Insurance Deduction.   You may be able to deduct up to 100% of your health insurance expenses. See the instructions for line 29 on page 33.

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 2004 modified AGI is less than $50,000 ($70,000 if married filing jointly or qualifying widow(er)). See the instructions for line 24 that begin on page 29.

Standard Mileage Rates.   The 2004 rate for business use of your vehicle is 36 cents a mile. The 2003 rate for use of your vehicle to get medical care or to move is 12 cents a mile.

Third Party Designee.   A third party designee can ask the IRS for copies of notices or transcripts related to your return. Also, the authorization can be revoked. See page 58.

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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