Exemption amount.
The amount of the standard exemption has increased from 3,050 in 2003 to $3,100 in 2004.

Exemption phaseout. You lose all or part of the benefit of your exemptions if your adjusted gross income is above a certain amount. The amount at which this phaseout begins depends on your filing status. For 2004, the phaseout begins at $107,025 for married persons filing
separately; $142,700 for single individuals; $178,350 for heads of household; and $214,050 for married persons filing jointly or qualifying widow(er)s.

Social Security Tax
According to the IRS the maximum amount of wages subject to Social Security tax is $87,900.

Education Credits
The Hope Credit applies only for the first two years of post-secondary education, such as college or vocational school, and it can be worth up to $1,500 per eligible student, per year. It does not apply to graduate and professional-level programs. You're allowed 100% of the first $1,000 of qualified tuition and related fees paid during the tax year, plus 50% of the next $1,000. Each student must be enrolled at least half-time.

The Lifetime Learning Credit applies to undergraduate, graduate and professional degree courses, including instruction to acquire or improve job skills. If you qualify, your credit equals 20% of the first $10,000 of post-secondary tuition and fees you pay during the year for all eligible students, for a maximum credit of $2,000 per tax return.

This year you can claim these credits if you or your dependents had college expenses and your income was under $52,000 for Head of Household, Single and Qualifying Widow(er) and under $105,000 for Married Filing Joint. Taxpayers with the Married Filing Separate filing status do not qualify for education credits.

Note:
You cannot claim both the Hope and Lifetime Learning Credits for the same student in the same year.

Adoption Tax Credit
You may be able to take a tax credit of up to $10,390 for qualifying expenses paid to adopt an eligible child (including a child with special needs). The adoption credit is an amount subtracted from your tax liability. Although the credit generally is allowed for the year following the year in which the expenses are paid, a taxpayer who paid qualifying expenses in 2004 for an adoption which became final in 2004, may be eligible to claim the credit on the 2004 return. The adoption credit is not available for any reimbursed expense. In addition to the credit, up to $10,390 paid or reimbursed through the year 2004 by your employer for qualifying adoption expenses may be excludable from your gross income.

Tuition and Fees Deduction
In 2004, if your modified adjusted gross income (MAGI) does not exceed $65,000 ($130,000 if married filing jointly) you are entitled to a maximum deduction of $4,000 per year. If your MAGI is greater than $65,000 ($130,000), but is not more than $80,000 ($160,000 if you are married filing jointly), your maximum tuition and fees deduction is $2,000. No tuition and fees deduction is allowed if your MAGI is larger than $80,000 ($160,000).

You cannot deduct higher education expenses on your income tax return if you or anyone else claims a Hope or Lifetime learning credit based on those SAME expenses.

Health Savings Account Deduction
The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 authorized the establishment of new health savings accounts effective January 1, 2004. These accounts are similar to Archer Medical Savings Accounts in that they permit eligible individuals to save for, and pay, health care expenses on a tax-free basis.

2004 Standard Milage Rate
The standard mileage rate for business use of an automobile was 37.5 cents per mile for 2004.
The standard mileage rate for moving or medical reasons was 14 cents per mile for 2004.
The standard mileage rate for charitable contributions was 14 cents per mile for 2004.

Combat Pay
Combat Pay — Some military personnel receiving combat pay get larger tax credits because of two law changes. The new law counts excludable combat pay as income when figuring the Child Tax Credit and gives the taxpayer the option of counting or ignoring combat pay as income when figuring the Earned Income Tax Credit. Counting combat pay as income when calculating these credits does not change the exclusion of combat pay from taxable income.

Standard Tax Deduction for 2004
Single or Married filing separately $4,850
Married filing jointly or Qualifying widow(er) with dependent child $9,700
Head of household $7,150

Itemized Tax Deductions vs Standard Tax Deductions:

What is itemizing and is it beneficial to me?

Itemization is the process of listing specific deductible personal expenses you paid during the year including but not limited to medical and dental care, state and local income taxes, real estate taxes, home mortgage interest, and gifts to charity. Such a list would appear on Form 1040, Schedule A , Itemized Tax Deductions.

When you complete your list, you total the amount spent and compare the total with your standard tax deduction. Generally the larger of the two deductions, standard or itemized, will be the tax deduction to choose, since it will lower the amount of federal income tax you will owe. For additional information, refer to Tax Topic 501, Should I Itemize?

References:
IRS Form 1040, Schedule A , Itemized Tax Deductions
IRS Tax Topic 501, Should I Itemize?
IRS Publication 17, Your Federal Income Tax For Individuals

Sales Tax or State and Local Income Taxes?
Taxpayers who itemize deductions will have a choice of claiming a state and local tax deduction for either sales or income taxes on their 2004 and 2005 returns. The IRS will provide optional tables for use in determining the deduction amount, relieving taxpayers of the need to save receipts throughout the year. Sales taxes paid on motor vehicles and boats may be added to the table amount, but only up to the amount paid at the general sales tax rate.