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Extension
of Certain Expiring Provisions This tax relief act accelerates to 2004 the increase in refundability of the child tax credit to 15 percent of the taxpayer's earned income in excess of $10,750 (with indexing). This provision applies to taxable years beginning after December 31, 2003. All modifications to the child tax credit will sunset under the provisions of the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA). This means that in 2010 the child tax credit falls to $500. Marriage Penalty Relief - The basic standard deduction for taxpayers filing a joint return is twice that (200 percent) of the basic standard deduction for single filers. The provision is effective for taxable years 2004-2010. The size of the 15 percent rate bracket for joint filers is increased to twice that for single filers for taxable years 2005-2010. Extension
of 10 Percent Tax Bracket - The size of the 10 percent tax bracket
is extended for 2005-2010. The upper limits of the brackets for
2004 are as follows: Alternative
Minimum Tax Exemption - For 2005, the exemption amounts are
as follows: The exemption
amount is phased out by an amount equal to 25 percent of the amount
by which the individual's alternative minimum taxable income exceeds: These amounts
are not indexed for inflation.
Extension of Research Tax Credit - Taxpayers are allowed a research tax credit equal to 20 percent of the amount by which their qualified research expenses for a taxable year exceed its base amount for that year. The credit is reinstated for expenses paid or incurred before January 1, 2006. Extension of Welfare-to-Work Tax Credit - The welfare-to-work tax credit is available on an elective basis to employers of qualified long-term family assistance recipients during the first two years of employment. The maximum credit is 35 percent of the first $10,000 of qualified first-year wages and 50 percent of the first $10,000 of qualified second-year wages. The maximum credit is $8,500 per qualified employee. The credit is extended for two years for wages paid or incurred for individuals beginning work after December 31, 2003 and before January 1, 2006. Extension of Work Opportunity Tax Credit - The credit equals 40 percent (25 percent for employment of 400 hours or less) of qualified first-year wage. Generally, qualified first-year wages are qualified wages not in excess of $6,000 attributable to services performed by a member of a targeted group during the one-year period beginning with the day the individual began work. The maximum credit equals $2,400. The credit is extended for two years for wages paid or incurred for individuals beginning work after December 31, 2003 and before January 1, 2006. Charitable Contributions of Computer Technology - Certain corporations are allowed a charitable contribution deduction of computer technology and equipment in excess of basis. The enhanced deduction is available for contributions made in taxable years beginning after December 31, 2003 and before January 1, 2006. Expenses of School Teachers - The $250 above-the-line deductions allowed for certain classroom expenses of elementary and secondary school teachers is extended for expenses paid or incurred in taxable years beginning in 2004 and 2005. Expensing of Environmental Remediation Costs - Taxpayers can elect to deduct certain environmental remediation costs that are otherwise chargeable to a capital account as a current expense in the year paid or incurred. This election is extended for two years through December 31, 2005. New York Liberty Zone Provisions - The authority to issue Liberty Zone bonds is extended through December 31, 2009. Nonrefundable Credits Allowed Against AMT - For taxable years beginning in 2004 and 2005, certain nonrefundable tax credits are allowed to the extent of the full amount of the individual's regular tax and alternative minimum tax. The credits are: • Dependent care credit Disclosure Authority Related to Student Loan Information - The authority to disclose information to the Department of Education for purposes of establishing an appropriate income-contingent repayment amount is extended for one year until December 31, 2005. Only the taxpayer's identity information, filing status, and adjusted gross income may be disclosed. Qualified Electric Vehicles Credit - The phase-out limitation for qualified electric vehicles placed in service in 2004 and 2005 has been eliminated. Because of this change, a taxpayer who purchased a qualified electric vehicle in 2004 and 2005 may claim 100 percent of the otherwise allowable credit. However, for property placed in service in 2006, the deduction remains at 25 percent of the otherwise allowable amount. Qualified Clean Fuel Property - The phase-out limitation for qualified clean-fuel vehicles placed in service in 2004 and 2005 has been eliminated. Because of this change, a taxpayer who purchases a qualified vehicle in 2004 and 2005 may claim 100 percent of the otherwise allowable deduction. However, for property placed in service in 2006, the deduction remains at 25 percent of the otherwise allowable amount. Archer Medical Savings Accounts - Taxpayers can establish a new Archer Medical Savings Account (MSA) through December 31, 2005.
AMERICAN JOBS CREATION ACT OF 2004 President Bush signed the American Jobs Creation Act of 2004 on October 22, 2004. The following highlights some of the many provisions: Small Business Expensing and Depreciation Two years ago, Congress raised the threshold for small business expensing from $25,000 to $100,000. This special treatment is reduced when the cost of qualifying property placed in service for the tax year exceeds $400,000. The enhanced treatment was designed as a temporary measure to stimulate the economy, falling back to $25,000 in 2006. The new law extends the higher small business expensing amounts through 2007. The threshold is indexed for inflation starting in 2004. It is $102,000 with a $410,000 property cap for 2004. This change carries through the indexing to 2007 as well. SUV Deduction: Large sports utility vehicles will no longer be able to be driven though a large tax loophole by business owners. Because the vehicle caps on depreciation do not apply to cars or trucks weighting more that 6,000 pounds, taxpayers can deduct up to the full cost of the SUV immediately as a section 179 deduction. Now, the deductions for vehicles weighing not more than 14,000 pounds is capped at $25,000, effective for property placed in service after the date of enactment. Owners of heavy SUV's still fare better than other vehicle owners, however. First-year deduction amounts for vehicles under 6,000 pounds currently are capped at $2,960 (not counting bonus depreciation which expires this year). Depreciation: Congress approved a 15-year recovery period, using straight-line depreciation, for qualified leasehold improvements to nonresidential real property placed in service after the date of enactment and before January 1, 2006. If the lessor made the improvement, subsequent owners generally cannot use the 15-year period to depreciate the improvement. Prior law required that a "qualified" leasehold improvement or addition be depreciated using straight-line depreciation over the same 39-year period as nonresidential real property. A qualified leasehold improvement is an improvement to the interior of a building, made by either the lessor or lessee and placed in service more than three years after the building is placed in service. The new law also provides a 15-year recovery period and straight-line depreciation for qualified restaurant property placed in service after the date of enactment and before January 1, 2006. The property also becomes eligible for first-year bonus depreciation. Qualified restaurant property is a building improvement placed in service more than three years after the building is placed in service. The restaurant must use more than half of the building's square footage. The shorter recovery period and the availability of bonus depreciation for restaurant property provide much larger deductions in the first year. If a leasehold improvement of restaurant property qualifies as tangible personal property under existing law, taxpayers can use cost segregation to depreciate the elements separately over a shorter recovery period, using bonus depreciation and an accelerated depreciation method. S Corporation Reform The new law dramatically changes the S corporation rules. The permissible number of S corporation shareholders increases from 75 to 100. Congress also approved treating all members of a family as one S-Corp shareholder. The new law defines members of a family as, "the common ancestor, lineal descendants of the common ancestor, and the spouses (or former spouses) of lineal descendants or common ancestor." In addition, to qualify as common ancestor, the person must be no more than six generations removed from the youngest generation of shareholders who otherwise would be members of the family. The new law also:
State Sales Tax Deduction The new law allows individuals to deduct state sales taxes instead of deducting state and local income taxes. This election has been made available for tax years beginning after 2003 and before 2006. Taxpayers electing to deduct state and local sales taxes paid will have two options - determine the deductible amount by accumulating receipts or using table to be prepared by the Secretary of the Treasury based on average consumption and other factors. The new sales tax deduction is available not only to taxpayers living in states without an income tax, but also those in any state who find that sales taxes paid during the year (for example, for several major purchases) exceed their state income tax liability for the year. However, the new deduction is available only for taxpayers that itemize their expenses. It is important to keep in mind that the alternative minimum tax (AMT) may eliminate any benefit provided by the sales tax deduction provision. Taxpayers are not allowed to deduct state and local taxes when computing the AMT. "Other" Revenue Provisions Also
grouped together in the new law under the heading, "Other
Revenue Provisions" are numerous ways to raise billions
of dollars in revenue. While all the provisions are important,
here are a few affecting the most taxpayers: Vehicle Donations: Congress voted to limit the deduction for vehicles contributed to charity. The amount of deduction will depend on how the donee organization uses the vehicle. If the charity sells the vehicle without using the vehicle in any significant way (or without improving the vehicle), the amount of the charitable deduction cannot exceed the gross proceeds from the sale. The taxpayer also must produce an acknowledgment as to value from the charity if the charity keeps the vehicle for its own use. Stiff penalties will be imposed on charities that don't approach this obligation honestly. The charity also is required to pass along to the IRS the information in the written contemporaneous acknowledgment that it is required to give to the donor. Taxpayers who have inflated deductions in past years are not home free. They still are required to substantiate the value of their vehicle donation on audit of a return of any open year. Intellectual Property Donations: Under the new rules, if a taxpayer contributes a patent or other intellectual property (other than certain copyrights or inventory) to a charitable organization, the taxpayer's initial charitable deduction is limited to the taxpayer's basis in the contributed property or its fair market value, whichever is less. The intellectual property donor is allowed to take an additional charitable deduction based on a specified percentage of the income the donee receives with respect to the donated property. The additional deduction can be taken either in the contribution year or subsequent tax years. The amount of any additional deduction is calculated on a sliding scale. These new rules apply to contributions made after June 3, 2004. Company Aircraft: The new law closes a loophole in connection with the use of company aircraft by executives. For officers, directors, and 10-percent-or-greater owners, no deduction will be allowed for expenses for the use of a facility (such as an airplane) in connection with a non-business activity, to the extent that the expenses exceed the amount treated as compensation or includible income for that individual. IRS Administration Installment Agreements: Congress also voted to authorize the IRS to enter into partial installment agreements. The IRS must review those partial installment payment agreements at least every two years. Consolidated Return Regs: Responding to Rite Aid, lawmakers approved language-authorizing the Treasury to provide rules treating corporations filing consolidated returns differently from corporations filing separate returns. Private Sector Debt Collection: For the first time, the IRS will be able to use private debt collection agencies to collect taxes. If the taxpayer cannot pay in full, the debt collection company can offer the taxpayer an installment agreement to pay over five years. Otherwise, it must turn the taxpayer's financial information over to the IRS for further action.
1.
The maximum 401(K) and 403(b) employee contribution increases to $13,000.
2. The maximum SIMPLE employee contribution increases to $9,000. 3. Taxpayers who are at least age 50 before the end of 2004 can increase their contribution limits by the following amounts for the following plans (called the "catch-up" contribution limit): a. An additional $3,000 for the 401(K), 403(b), salary reduction SEP plans and 457 plans. b. An additional $1,500 for SIMPLE plans. HIGHER INCOME
LIMITS FOR DEDUCTIBLE IRAs INCREASED
COLLEGE TUITION DEDUCTION MARRIAGE
PENALTY RELIEF ALTERNATIVE
MINIMUM TAX PURCHASE
OF NEW BUSINESS EQUIPMENT ESTATE
AND GIFT TAXES 1. The New York State personal income tax rate
has been increased for the top bracket from 6.85 to 7.7%.
2. The New York City personal income tax rate has been increased for the top bracket from 3.648% to 4.45%. |
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