Tax Law Changes for Businesses

Depreciation and Section 179 Expense

Extension of acquisition date . Property will meet the Òacquisition date testÓ for purposes of qualifying for the 30% special depreciation allowance if the property is acquired before January 1, 2005 (extended from September 11, 2004).

Increased section 179 limits. The maximum section 179 deduction you can elect for property you placed in service in 2004 is increased from $100,000 to $102,000 for quali­fied section 179 property ($137,000 for qualified zone property, qualified renewal property, or qualified New York Liberty Zone property). This limit is reduced by the amount by which the cost of section 179 property placed in service during the tax year exceeds $410,000 (increased from $400,000).

More information. Please contact one of our tax professional at 212-876-2341.

Termination of Special Depreciation Rules for Property Used on Indian Reservations

The special depreciation rules that apply to qualified Indian reservation property are scheduled to expire for property placed in service after 2004. 

Caution : At the time this article was written, Congress was considering legislation that would apply the special rules for property placed in service in 2005. Please contact one of our tax professional to find out if this legislation was enacted.

 

 

Electric and Clean-Fuel Vehicles

For vehicles placed in service in 2004, the maximum clean-fuel vehicle deduction and qualified electric vehicle credit are scheduled to be reduced by 25%, as compared to 2003. 

Caution : At the time this article was written, Congress was considering legislation that would repeal the reduction for 2004. Please contact one of our tax professional to find out if this legislation was enacted.

 

 

Environmental Cleanup (Remediation) Costs

Beginning in 2004, environmental cleanup (remediation) costs must be capitalized. You cannot choose to deduct environmental cleanup costs paid or incurred after Decem­ber 31, 2003, as a current business expense.

 

Indian Employment Credit

The Indian employment credit is scheduled to expire for tax years beginning after 2004.

 

 

Meal Expense Deduction

Generally, you can deduct only 50% of your business-re-lated meal expenses while traveling away from your tax home for business purposes. Also, you can generally de­duct only 50% of certain reimbursements you make to your employees for meal expenses they incur while traveling away from home on business. You can deduct a higher percentage if the meals take place during or incident to any period subject to the Department of TransportationÕs Òhours of serviceÓ limits. (These limits apply to workers who are under certain federal regulations.) The percentage is 70% for 2004.

 

 

New York Liberty Zone Business Employee Credit Scheduled To Expire

The New York Liberty Zone business employee credit is scheduled to expire for wages paid to qualified employees for work performed after 2003.

Caution : At the time this article was written, Congress was considering legisla­tion that would allow this credit with respect to work per­formed by qualified employees during 2004. Please contact one of our tax professional to find out if this legislation was enacted.

 

 

Issuance of Qualified Zone Academy Bonds Scheduled To Expire

State and local governments issue qualified zone acad­emy bonds to raise funds for the use of certain eligible public schools. The national qualified academy zone bond limit for 2003 was $400 million, but is zero for 2004 (exclud­ing any carryover limitation). 

Caution : At the time this article was written, Congress was considering legisla­tion that would establish a national limitation amount for 2004. Please contact one of our tax professional to find out if this legislation was enacted.

 

 

Self-Employment Tax

The self-employment tax rate on net earnings remains the same for 2004. This rate, 15.3%, is a total of 12.4% for social security (old-age, survivors, and disability insurance) and 2.9% for Medicare (hospital insurance).

The maximum amount subject to the social security part for tax years beginning in 2004 has increased to $87,900. All net earnings of at least $400 are subject to the Medicare part.

 

 

Social Security and Medicare Taxes

For 2004, the employer and employee will continue to pay:

  1. 6.2% each for social security tax (old-age, survivors, and disability insurance), and
  2. 1.45% each for Medicare tax (hospital insurance).

Wage limits. For social security tax, the maximum amount of 2004 wages subject to the tax has increased to $87,900. For Medicare tax, all covered 2004 wages are subject to the tax. 

 

 

Standard Mileage Rate

For 2004, the standard mileage rate for the cost of operating your car, van, pickup, or panel truck is increased to 37.5 cents a mile for all business miles.

Standard mileage rate available for small fleets. Beginning in 2004, the business standard mileage rate may be used for as many as four vehicles that you own or lease and use simultaneously.

 

 

Work Opportunity Credit and Welfare-to-Work Credit Scheduled to Expire

The work opportunity credit and the welfare-to-work credit are scheduled to expire for wages paid to individuals who began working for you after 2003. 

Caution : At the time this article was written, Congress was considering legisla­tion that would allow these credits with respect to employ­ees who began work for you in 2004. Please contact one of our tax professional to find out if this legislation was enacted.

 

 

Individual Retirement Accounts

Modified AGI Limit for Traditional IRA Contributions Increased

For 2004, if you are covered by a retirement plan at work, your deduction for contributions to a traditional IRA will be reduced (phased out) if your modified adjusted gross in­come (AGI) is:

For all filing statuses other than married filing separately, the upper and lower limits of the phaseout range will increase by $5,000.

New Method for Figuring Net Income On Returned or Recharacterized IRA Contributions

There is a new method for figuring the net income on IRA contributions made after 2003 that are returned to you or recharacterized. For more information, see How Do You Recharacterize a Contribution? or Contributions Returned Before Due Date of Return in chapter 1 of Publication 590, Individual Retirement Arrangements (IRAs).

For figuring the net income on IRA contributions made during 2002 and 2003 that were returned to you or recharacterized, you can use the method described in Publication 590, the method permitted by Notice 2000Ð39, or the method in the proposed regulations.