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 fishermen. 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 inamount 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.

What To Look for in 2005

IRA deduction expanded. You, and your spouse if filing jointly, may be able to deduct up to $4,000 ($4,500 if age 50 or older at the end of 2005). If you were covered by a retirement plan, you may be able to take an IRA deduction if your 2005 modified AGI is less than $60,000 ($80,000 if married filing jointly or qualifying widow(er)).

EIC phaseout amount increased for joint filers. The maximum amount of earned income that joint filers can have and still take the EIC will be $2,000 more than that for other filers.

Elective salary deferrals. The maximum amount you can defer under all plans is generally limited to $14,000 ($17,000 for section 403(b) plans if you qualify for the 15-year rule). The catch-up contribution limit is increased to $4,000 ($2,000 for SIMPLE plans).

Filing Status

Check only the filing status that applies to you. The ones that will usually give you the lowest tax are listed last.

• Married filing separately.
• Single.
• Head of Household
• Married filing jointly or Qualifying widow(er) with dependent child.

Tip: More than one filing status may apply to you. Choose the one that will give you the lowest tax.

Exemptions

You usually can deduct $3,100 on line 41 for each exemption you can take.

Line 6b

Spouse

Check the box on line 6b if either of the following apply.

1. Your filing status is married filing jointly.
2. You were married as of December 31, 2004, your filing status is married filing separately or head of household, and both of the following apply.
   1. Your spouse had no income and is not filing a return.
   2. Your spouse cannot be claimed as a dependent on another person’s return.

If your filing status is head of household and you check the box on line 6b, enter the name of your spouse on the dotted line next to line 6b. Also, enter your spouse’s social security number in the space provided at the top of your return.

Line 6c

Dependents

You can take an exemption for each of your dependents. The following is a brief description of the five tests that must be met for a person to qualify as your dependent. If you have more than five dependents, attach a statement to your return with the required information.

Relationship Test. The person must be either your relative or have lived in your home as a family member all year. If the person is not your relative, the relationship must not violate local law.

Joint Return Test. If the person is married, he or she cannot file a joint return. But the person can file a joint return if the return is filed only as a claim for refund and no tax liability would exist for either spouse if they had filed separate returns.

Citizen or Resident Test. The person must be a U.S. citizen or resident alien, or a resident of Canada or Mexico. There is an exception for certain adopted children. To find out who is a resident alien, use TeleTax topic 851 (see page 13) or see Pub. 519.

Income Test. The person’s gross income must be less than $3,100. But your child’s gross income can be $3,100 or more if he or she was either under age 19 at the end of 2004 or under age 24 at the end of 2004 and was a student.

TIP: For more details about the tests, including any exceptions that apply, see Pub. 501.

Line 6c, Column (2)

You must enter each dependent’s social security number (SSN). Be sure the name and SSN entered agree with the dependent's social security card. Otherwise, at the time we process your return, we may disallow the exemption claimed for the dependent and reduce or disallow any other tax benefits (such as the child tax credit and the earned income credit) based on the dependent. If the name or SSN on the dependent's social security card is not correct, call the Social Security Administration at 1-800-772-1213.

Tip: For details on how your dependent can get an SSN, see page 19. If your dependent will not have a number by April 15, 2005, see What if You Cannot File on
Time? on page 15.

If your dependent child was born and died in 2004 and you do not have an SSN for the child, you may attach a copy of the child’s birth certificate instead and enter "DIED" in column (2).

Adoption Taxpayer Identification Numbers (ATINs). If you have a dependent who was placed with you by an authorized placement agency and you do not know his or her SSN, you must get an ATIN for the dependent from the IRS. See Form W-7A for details.

Line 6c, Column (4)

Check the box in this column if your dependent is a qualifying child for the child tax credit (defined below). If you have at least one qualifying child, you may be able to take the child tax credit on line 51 and the additional child tax credit on line 67.

Qualifying Child for Child Tax Credit. A qualifying child for purposes of the child tax credit is a child who:

• Is claimed as your dependent on line 6c
• Was under age 17 at the end of 2004
• Is your (a) son, daughter, adopted child, stepchild, or a descendant of any of them (for example, your grandchild); (b) brother, sister, stepbrother, stepsister, or a
  descendant of any of them (for example, your niece or nephew), whom you cared for as you would your own child; or (c) foster child (any child placed with you by an authorized placement agency whom you cared for as you would your own child)
• Is a United States citizen or resident alien.

Caution: The above requirements are not the same as the requirements to be a qualifying child for the earned income credit.

An adopted child is always treated as your own child. An adopted child includes a child placed with you by an authorized beneplacement agency for legal adoption even if the adoption is not final. An authorized placement agency includes any person or court authorized by state law to place children for legal adoption.

Children Who Did Not Live With You Due to Divorce or Separation

If you are claiming a child who did not live with you under the rules in Pub. 501 for children of divorced or separated parents, attach Form 8332 or similar statement to your return. But see Exception below.

If your divorce decree or separation agreement went into effect after 1984, you may attach certain pages from the decree or agreement instead of Form 8332. To be able to do this, the decree or agreement must state:

1. You can claim the child as your dependent without regard to any condition, such as payment of support, and
2. The other parent will not claim the child as a dependent, and
3. The years for which the claim is released.

Attach the following pages from the decree or agreement:

• Cover page (include the other parent's SSN on that page), and
• The pages that include all of the information identified in 1 through 3 above, and
• Signature page with the other parent's signature and date of agreement.

Note: You must attach the required information even if you filed it in an earlier year.

Exception. You do not have to attach Form 8332 or similar statement if your divorce decree or written separation agreement went into effect before 1985 and it states that you can claim the child as your dependent.

Other Dependent Children

Include the total number of children who did not live with you for reasons other than divorce or separation on the line labeled "Dependents on 6c not entered above."Include dependent children who lived in Canada or Mexico during 2004.

Line 10

Taxable Refunds, Credits, or Offsets of State and Local Income Taxes

TIP: None of your refund is taxable if, in the year you paid the tax, you did not itemize deductions.

If you received a refund, credit, or offset of state or local income taxes in 2004, you may receive a Form 1099-G. If you chose to apply part or all of the refund to your 2004 estimated state or local income tax, the amount applied is treated as received in 2004. If the refund was for a tax you paid in 2003 and you itemized deductions for 2003, use the worksheet on this page to see if any of your refund is taxable.

Exceptions

See Recoveries in Pub. 525 instead of using the worksheet if any of the following applies:

• You received a refund in 2004 that is for a tax year other than 2003.
• You received a refund other than an income tax refund, such as a real property tax refund, in 2004 of an amount deducted or credit claimed in an earlier year.
• Your 2003 taxable income was less than zero.
• You made your last payment of 2003 estimated state or local income tax in 2004.
• You owed alternative minimum tax in 2003.
• You could not deduct the full amount of credits you were entitled to in 2003 because the total credits exceeded the tax shown on your 2003 Form 1040, line 42.
• You could be laimed as a dependent by someone else in 2003.

Also, see Tax Benefit Rule in Pub. 525 instead of using the worksheet if all three of the following apply.

1. You had to use the Itemized Deductions Worksheet in the 2003 Schedule A instructions because your 2003 adjusted gross income was over $137,300 if single, married filing jointly, head of household, or qualifying widow(er); $68,650 if married filing separately.
2. You could not deduct all of the amount on line 1 of the 2003 Itemized Deductions Worksheet.
3. The amount on line 8 of that 2003 worksheet would be more than the amount on line 4 of that worksheet if the amount on line 4 were reduced by 80% of the refund you received in 2004.

Line 11

Alimony Received

Enter amounts received as alimony or separate maintenance. You must let the person who made the payments know your social security number. If you do not, you may have to pay a $50 penalty. For more details, use TeleTax topic 406 (see page 13) or see Pub. 504.

Line 19

Unemployment Compensation

You should receive a Form 1099-G showing the total unemployment compensation paid to you in 2004.

If you received an overpayment of unemployment compensation in 2004 and you repaid any of it in 2004, subtract the amount you repaid from the total amount you received. Enter the result on line 19. Also, enter "Repaid" and the amount you repaid on the dotted line next to line 19. If, in 2004, you repaid unemployment compensation that you included in gross income in an earlier year, you may deduct the amount repaid on Schedule A, line 22. But if you repaid more than $3,000, see Repayments in Pub. 525 for details on how to report the repayment.  

Lines 20a and 20b

Social Security Benefits

You should receive a Form SSA-1099 showing in box 3 the total social security benefits paid to you. Box 4 will show the amount of any benefits you repaid in 2004. If you received railroad retirement benefits treated as social security, you should receive a For RRB-1099.

Use the worksheet on page 25 to see if any of your benefits are taxable.

Exceptions. Do not use the worksheet on page 25 if any of the following apply.

• You made contributions to a traditional IRA for 2004 and you were covered by a retirement plan at work or through self-employment. Instead, use the worksheets in Pub. 590 to see if any of your social security benefits are taxable and to figure your IRA deduction.
• You repaid any benefits in 2004 and your total repayments (box 4) were more than your total benefits for 2004 (box 3). None of your benefits are taxable for 2004. In addition, you may be able to take an itemized deduction for part of the excess repayments if they were for benefits you included in gross income in an earlier year. For more details, see Pub. 915.
• You file Form 2555, 2555-EZ, 4563, or 8815, or you exclude employer-provided adoption benefits or income from sources within Puerto Rico. Instead, use the work-sheet in Pub. 915.

Line 21

Other Income

Do not report on this line any income from self-employment or fees received as a notary public. Instead, you must use Schedule C, C-EZ, or F, even if you do not have
any business expenses. Also, do not report on line 21 any nonemployee compensation shown on Form 1099-MISC. Instead, see the chart on page 18 to find out where to report that income.

Use line 21 to report any income not reported elsewhere on your return or other schedules. See the examples that begin below. List the type and amount of income. If
necessary, show the required information on an attached statement. For more details, see Miscellaneous Income in Pub. 525.

TIP: Do not report any nontaxable income on line 21, such as child support; money or property that was inherited, willed to you, or received as a gift; or life insurance proceeds received because of a person’s death.

Examples of income to report on line 21 are:

• Taxable distributions from a Coverdell education savings account (ESA). Distributions from a Coverdell ESA may be taxable if they are more than the qualified education expenses of the designated beneficiary in 2004. See Pub. 970.
  CAUTION! You may have to pay an additional tax if you received a taxable distribution from a Coverdell ESA or a QTP. See
  the Instructions for Form 5329.
• Taxable distributions from a health savings account (HSA) or an Archer MSA. Distributions from these accounts may be taxable if (a) they are more than the unreimbursed qualified medical expenses of the account beneficiary or account holder in 2004, and (b) they were not included in a qualified rollover. See Pub. 969.
  CAUTION! You may have to pay an additional tax if you received a taxable distribution from an HSA or an Archer MSA. See the Instructions for Form 8889 for HSAs or the Instructions for Form 8853 for Archer MSAs.
• Prizes and awards.
• Gambling winnings, including lotteries, raffles, a lump-sum payment from the sale of a right to receive future lottery payments, etc. For details on gambling losses, see the instructions for Schedule A, line 27, on page A-6.
  TIP Attach Form(s) W-2G to Form 1040 if any federal income tax was withheld.
• Jury duty fees. Also, see the instructions for line 35 that begin on page 31.
• Alaska Permanent Fund dividends.
• Reimbursements or other amounts received for items deducted in an earlier year, such as medical expenses, real estate taxes, or home mortgage interest. See Recoveries in Pub. 525 for details on how to figure the amount to report.
• Income from the rental of personal property if you engaged in the rental for profit but were not in the business of renting such property. Also, see the instructions for line 35 that begin on page 31.
• Income from an activity not engaged in for profit. See Pub. 535.
• Loss on certain corrective distributions of excess deferrals. See Pub. 575.  

Line 23

Educator Expenses

If you were an eligible educator in 2004, you may deduct up to $250 of qualified expenses you paid in 2004. If you and your spouse are filing jointly and both of you
were eligible educators, the maximum deduction is $500. However, neither spouse may deduct more than $250 of his or her qualified expenses. An eligible educator is
a kindergarten through grade 12 teacher, instructor, counselor, principal, or aide in a school for at least 900 hours during a school year.

Qualified expenses include ordinary and necessary expenses paid in connection with books, supplies, equipment (including computer equipment, software, and services), and other materials used in the classroom. An ordinary expense is one that is common and accepted in your educational field. A necessary expense is one that is helpful and appropriate for your profession as an educator. An expense does not have to be required to be considered necessary.

Qualified expenses do not include expenses for home schooling or for nonathletic supplies for courses in health or physical education. You must reduce your qualified
expenses by the following amounts.

• Excludable U.S. series EE and I savings bond interest from Form 8815.
• Nontaxable qualified state tuition program earnings.
• Nontaxable earnings from Coverdell education savings accounts.
• Any reimbursements you received for these expenses that were not reported to you in box 1 of your Form W-2.

Line 24

Certain Business Expenses of Reservists, Performing Artists, and Fee-Basis Government Officials Include the following deductions on line 24.

• Certain business expenses of National Guard and reserve members who traveled more than 100 miles from home to perform
  services as a National Guard or reserve member.
• Performing-arts-related expenses as a qualified performing artist.
• Business expenses of fee-basis state or local government officials.

For more details, see Form 2106 or 2106-EZ.

Line 25

IRA Deduction

If you make any nondeductible contributions to a traditional IRA for 2004, you must report them on Form 8606.

If you made contributions to a traditional individual retirement arrangement (IRA) for 2004, you may be able to take an IRA deduction. But you must have had earned income to do so. For IRA purposes, earned income includes certain alimony received. See Pub. 590 for details. You should receive a statement by May 31, 2005, that shows all contributions to your traditional IRA for 2004.

• If you were age 70 1/2 or older at the end of 2004, you cannot deduct any contributions made to your traditional IRA for 2003 or treat them as nondeductible contributions.
• You cannot deduct contributions to a Roth IRA or an education IRA.
  Caution: If you made contributions to both a traditional IRA and a Roth IRA for 2004, use the worksheet in Pub. 590 to figure the amount, if any, of your IRA deduction.
• You cannot deduct elective contributions to a 401(k) plan, SIMPLE plan, or the Federal Thrift Savings Plan. These amounts are not included as income in box 1 of your W-2 form. But you may be able to take the retirement savings contributions credit. See the instructions for line 50 on page 36.
• If you made contributions to your IRA in 2004 that you deducted for 2003, do not include them in the worksheet.
• If you received a distribution from a nonqualified deferred compensation plan or nongovernmental section 457 plan that is included in box 1 of your Form W-2, do not include that distribution on line 8 of the worksheet. The distribution should be shown in box 11 of your Form W-2. If it is not, contact your employer for the amount
  of the distribution.
• You must file a joint return to deduct contributions to your spouse’s IRA. Enter the total IRA deduction for you and your spouse on line 25.
• Do not include qualified rollover contributions in figuring your deduction. Instead, see the instructions for lines 15a and 15b on page 22.
• Do not include trustee’s fees that were billed separately and paid by you for your IRA. These fees can be deducted only as an itemized deduction on Schedule A.
• If the total of your IRA deduction on line 25 plus any nondeductible contribution to your traditional IRAs shown on Form 8606 is less than your total traditional IRA contributions for 2004, see Pub. 590 for special rules.

TIP: By April 1 of the year after the year in which you turn age 70 1/2 , you must start taking minimum required distributions from your traditional IRA. If you do not, you may have to pay a 50% additional tax on the amount that should have been distributed. For details, including how to figure the minimum required distribution, see Pub. 590.

Were You Covered by a Retirement Plan?

If you were covered by a retirement plan (qualified pension, profit-sharing (including 401(k)), annuity, Keogh, SEP, SIMPLE, etc.) at work or through self-employment, your IRA deduction may be reduced or eliminated. But you can still make contributions to an IRA even if you cannot deduct them. In any case, the income earned on your IRA contributions is not taxed until it is paid to you.

The "Retirement plan" box in box 13 of your W-2 form should be checked if you were covered by a plan at work even if you were not vested in the plan. You are also covered by a plan if you were self-employed and had a Keogh, SEP, or SIMPLE retirement plan.

If you were covered by a retirement plan and you file Form 2555, 2555-EZ, or 8815, or you exclude employer-provided adoption benefits, see Pub. 590 to figure the amount, if any, of your IRA deduction.

Married Persons Filing Separately. If you were not covered by a retirement plan but your spouse was, you are considered covered by a plan unless you lived apart from your spouse for all of 2004.

Line 26

Student Loan Interest Deduction

You may take this deduction if all four of the following apply.

1. You paid interest in 2004 on a qualified student loan (see below).
2. Your filing status is any status except married filing separately.
3. Your modified adjusted gross income (AGI) is less than: $65,000 if single, head of household, or qualifying widow(er); $130,000 if married filing jointly.
4. You are not claimed as a dependent on someone’s (such as your parent’s) 2004 tax return.

A Qualified Student Loan is any loan you took out to pay the qualified higher education expenses for yourself, your spouse, or anyone who was your dependent when the loan was taken out. The person for whom the expenses were paid must have been an eligible student (see the next page). However, a loan is not a qualified student loan if (1) any of the proceeds were used for other purposes or (2) the loan was from either a related person or a person who borrowed the proceeds under a qualified employer plan or a contract purchased under such a plan. To find out who is a related person, see Pub. 970.

Qualified higher education expenses generally include tuition, fees, room and board, and related expenses such as books and supplies. The expenses must be for education in a degree, certificate, or similar program at an eligible educational institution. An eligible educational institution includes most colleges, universities, and certain vocational schools. You must reduce the expenses by the following nontaxable benefits:

• Employer-provided educational assistance benefits that are not included in box 1 of your W-2 form(s).
• Excludable U.S. series EE and I savings bond interest from Form 8815.
• Nontaxable qualified state tuition program earnings.
• Nontaxable earnings from Coverdell education savings accounts.
• Any scholarship, educational assistance allowance, or other payment (but not gifts, inheritances, etc.) excluded from income.
  
  For more details on these expenses, see Pub. 970.
  
  An eligible student is a person who:
• Was enrolled in a degree, certificate, or other program (including a program of study abroad that was approved for credit by the institution at which the student was enrolled) leading to a recognized educational credential at an eligible educational institution, and
• Carried at least half the normal full-time work load for the course of study he or she was pursuing.

Line 27

Tuition and Fees Deduction

You may take this deduction only if all of the following apply.

1. You paid qualified tuition and fees (see this page) in 2004 for yourself, your spouse, or your dependent(s).
2. Your filing status is any status except married filing separately.
3. Your modified adjusted gross income (AGI) is not more than: $80,000 if single, head of household, or qualifying widow(er); $160,000 if married filing jointly. Use lines 1 through 3 of the worksheet below to figure your modified AGI.
4. You cannot be claimed as a dependent on someone's (such as your parent's) 2004 tax return.
5. You are not claiming an education credit for the same student. See the instructions for line 49 on page 36.

Exception. Use Pub. 970 instead of the worksheet below to figure your tuition and fees deduction if you file Form 2555, 2555-EZ, or 4563, or you exclude income from sources within Puerto Rico.

Qualified Tuition and Fees are amounts paid in 2004 for tuition and fees required for the student's enrollment or attendance at an eligible educational institution during 2004. Tuition and fees paid in 2004 for an academic period that begins in the first 3 months of 2005 can also be used in figuring your deduction. Amounts paid include those paid by credit card or with borrowed funds. An eligible educational institution includes most colleges, universities, and certain vocational schools.

Qualified tuition and fees do not include any of the following:

• Amounts paid for room and board, insurance, medical expenses (including student health fees), transportation, or other similar personal, living, or family expenses.
• Amounts paid for course-related books, supplies, equipment, and nonacademic activities, except for fees required to be paid to the institution as a condition of enrollment or attendance.
• Amounts paid for any course involving sports, games, or hobbies, unless such course is part of the student's degree program.

Qualified tuition and fees must be reduced by the following benefits.

• Excludable U.S. series EE and I savings bond interest from Form 8815.
• Nontaxable qualified state tuition program earnings.
• Nontaxable earnings from Coverdell education savings accounts.
• Any scholarship, educational assistance allowance, or other payment (but not gifts, inheritances, etc.) excluded from income.

For more details, see Pub. 970.

TIP You may be able to take a credit for your educational expenses instead of a deduction. See the instructions for line 49 on page
36 for details.

Line 28

Health Savings Account Deduction

If contributions (other than employer contributions) were made to your health savings account for 2004, you may be able to equiptake
this deduction. See Form 8889.

Line 29

Moving Expenses

If you moved in connection with your job or business or started a new job, you may be able to take this deduction. But your new workplace must be at least 50 miles farther from your old home than your old home was from your old workplace. If you had no former workplace, your new workplace must be at least 50 miles from your old
home. Use TeleTax topic 455 (see page 8) or see Form 3903.

Line 31

Self-Employed Health Insurance Deduction

You may be able to deduct part of the amount paid for health insurance for your-self, your spouse, and dependents if either of the following applies.

• You were self-employed and had a net profit for the year.
• You used one of the optional methods to figure your net earnings from self-employment on Schedule SE.
• You received wages in 2004 from an S corporation in which you were a more-than- 2% shareholder. Health insurance benefits paid for you may be shown in box 14 of your W-2 form.

The insurance plan must be established under your business. But if you were also eligible to participate in any subsidized health plan maintained by your or your spouse’s employer for any month or part of a month in 2003, amounts paid for health insurance coverage for that month cannot be used to figure the deduction. For example, if you were eligible to participate in a sub-sidized health plan maintained by your spouse’s employer from September 30 through December 31, you cannot use amounts paid for health insurance coverage for September through December to figure your deduction. For more details, see Pub. 535.

Note. If, during 2004, you were an eligible trade adjustment assistance (TAA) recipient, alternative TAA recipient, or Pension Benefit Guaranty Corporation pension recipient, you must complete Form 8885 before completing the worksheet below. When figuring the amount to enter on line 1of the worksheet below, do not include any health coverage tax credit advance payments shown in box 1 of Form 1099-H. Also, subtract the amount shown on line 4 of Form 8885 (reduced by any advance payments shown on line 6 of that form) from the total insurance premiums you paid.

Exception. Use Pub. 535 to find out how to figure your deduction if any of the following apply:

• You had more than one source of income subject to self-employment tax.
• You file Form 2555 or 2555-EZ.
• You are using amounts paid for qualified long-term care insurance to figure the deduction.

Line 32

Self-Employed SEP, SIMPLE, and Qualified Plans

If you were self-employed or a partner, you may be able to take this deduction. See Pub. 560 or, if you were a minister, Pub. 517.

Line 33

Penalty on Early Withdrawal of Savings

The Form 1099-INT or Form 1099-OID you received will show the amount of any penalty you were charged.

Lines 34a and 34b

Alimony Paid

If you made payments to or for your spouse or former spouse under a divorce or separation instrument, you may be able to take this deduction - see Pub. 504.

Line 35

Include in the total on line 35 any of the following adjustments. To find out if you can take the deduction, see the form or publication indicated. On the dotted line next to line 33, enter the amount of your deduction and identify it as indicated.

• Archer MSA deduction (see Form 8853). Identify as “MSA.”
• Jury duty pay if you gave the pay to your employer because your employer paid your salary while you served on the jury. Identify as “Jury Pay.”
• Deductible expenses related to income reported on line 21 from the rental of personal property engaged in for profit. Identify as “PPR.”
• Reforestation amortization and expenses (see Pub. 535). Identify as “RFST.”
• Repayment of supplemental unemployment benefits under the Trade Act of 1974 (see Pub. 525). Identify as “Sub-Pay TRA.”
• Contributions to section 501(c)(18)(D) pension plans (see Pub. 525). Identify as “501(c)(18)(D).”
• Contributions by certain chaplains to section 403(b) plans (see Pub. 517). Identify as “403(b).”
• Attorney fees and court costs paid after October 22, 2004, for actions settled or decided after that date involving certain unlawful discrimination claims, but only to the extent of gross income from such actions (see Pub. 525). Identify as “UDC.”
• Deduction for clean-fuel vehicles. If you placed a qualified clean-fuel vehicle in service in 2004, you can deduct $2,000 on
  line 35 if you did not use the vehicle in your business (other than as an employee). Identify this deduction on line 35 as “Clean-Fuel.”

If you used a qualified clean-fuel vehicle or other clean-fuel vehicle property in your business (other than as an employee), claim the business portion of the deduction on the applicable line of Schedule C, E, or F.

TIP There are higher deduction amounts for heavy trucks, vans, and buses.

A qualified clean-fuel vehicle:

1. Must be acquired new and for your own use.
2. Must satisfy any federal and state emissions standards.
3. Is designed to be propelled by a clean-burning fuel, such as natural gas, liquefied natural gas, liquefied petroleum gas, hydrogen, or electricity.

A qualified clean-fuel vehicle includes certain gasoline-electric hybrid vehicles such as the Honda Insight, Honda Civic Hybrid, and Toyota Prius. It does not include electric vehicles.

TIP You may be able to take a credit if you placed a new electric vehicle in service in 2004. See Form 8834 for details.

You may also be able to take this deduction for certain new property installed on a motor vehicle to enable it to be propelled by a clean-burning fuel.

For more details, see Pub. 535.

Line 48

Retirement Savings Contributions Credit

You may be able to take this credit if you, or your spouse if filing jointly, made:

1. Contributions to a traditional or Roth IRA.
2. Elective deferrals to a 401(k), 403(b), 457, SEP, or SIMPLE plan.
3. Voluntary contributions to a qualified retirement plan.
4. Voluntary contributions to a 501(c)(18 plan.

However, you cannot take the credit if any of the following apply.

1. The amount on Form 1040, line 37, is more than $25,000 ($37,500 if head of household; $50,000 if married filing jointly).
2. The person(s) who made the qualified contribution or elective deferral (a) was born after January 1, 1987, (b) is claimed as
   a dependent on someone else’s 2004 tax return, or (c) was a student (defined below).

You were a student if during any 5 months of 2004 you:

• Were enrolled as a full-time student at a school or
• Took a full-time, on-farm training course given by a school or a state, county, or local government agency.

A school includes technical, trade, and mechanical schools. It does not include on-the-job training courses, correspondence
schools, or night schools.

For more details, use TeleTax topic 610 (see page 8) or see Form 8880.

Line 65b

Combat pay, Nontaxable. If you were a member of the U.S. Armed Forces who served in a combat zone, certain pay is excluded
from your income. See Combat Zone Exclusion in Pub. 3. You can elect to include this pay in your earned income when figuring the
EIC. The amount of your nontaxable combat pay should be shown in Form(s) W-2, box 14, with code Q. Credit figured by the IRS. To have the IRS figure the credit for you:

1. Put “EIC” on the dotted line next to Form 1040, line 65a.
2. Be sure you enter the nontaxable combat pay you elect to include in earned income on Form 1040, line 65b. See Combat pay, Nontaxable on page 43.
3. If you have a qualifying child, complete and attach Schedule EIC. If your EIC for a year after 1996 was reduced or disallowed, see Form 8862, Who must file below.