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The new tax cut package Congress passed on September 23 contains as many
business-related provisions as it does provisions for individual tax relief.
While the title of the new law is The Working Families Tax Relief Act
of 2004, as with most legislative titles, the title does not tell the
entire story. In addition to many provisions that help trim taxes for
individuals and families, the bill also provides significant relief to
businesses. As Congress often does, it started with a tax bill to increase
just one tax provision, the child tax credit, and used the same bill to
tack on many more tax cuts for a broad spectrum of taxpayers, from single
filers and small businesses all the way up to global corporations. In
the end, the new $146 billion tax cut package makes over 175 changes to
the Tax Code. If you have any questions about the new tax bill please
feel free to call or email our offices for assistance.
EXTENDED BUSINESS TAX RELIEF
Below are some of the major business tax extensions:
R & D TAX CREDIT: This credit is extended for amounts
paid or incurred after June 30, 2004 and before 2006. Over $4.3 billion
in research and development credits are claimed each year by America's
biggest companies.
ENHANCED DEDUCTION FOR CHARITABLE TECHNOLOGY CONTRIBUTIONS:
Donations of qualified computers are extended for contributions made in
tax years beginning after 2003 and before 2006. Donations generally must
be made to libraries and schools.
WELFARE-TO-WORK/WORK OPPORTUNITY TAX CREDITS: These
credits are extended for wages paid or incurred for qualified individuals
starting work after 2003 and before 2006. The WOTC can reach as high as
$2,400 for each employee. The maximum welfare-to-work credit is $8,500
per employee.
CONTRIBUTIONS TO ARCHER MEDICAL SAVINGS ACCOUNTS (MSAS):
Contributions into these accounts will be extended through 2005. Archer
MSAs have not fulfilled lawmakers' initial objective. Participation has
lagged and now they have a new competitor: Health Savings Accounts (HSAs).
MSA balances may be rolled over into HSAs.
OTHER IMPORTANT NOTES FOR BUSINESSES:
- After 2005, the $100,000 limit on section 179 expensing is scheduled
to revert to the pre- 2003 $25,000 level. This is a significant benefit
that should not be overlooked while it is still on the books.
- Even more
pressing, however, is making certain your business maximizes allowable
bonus depreciation. That tax break expires at the end of this year. Most
experts anticipate that it will not be extended.
TAX RELIEF FOR INDIVIDUALS
Below are the major changes that will be affecting the most individual
taxpayers:
CHILD TAX CREDIT: Parents of children under 17 can continue
to claim a $1,000 child tax credit for each child through 2010. Without
the new law, the child credit would have dropped to $700 in 2005.
TEACHER'S EXPENSE DEDUCTION: This deduction opportunity
is extended for 2004 and 2005. This incentive allows professional educators
to deduct, above-the-line, up to $250 of out-of-pocket classroom expenses.
The deduction is available to K-12 teachers, instructors, counselors,
principals, and aides. The average teacher reportedly spends about $450
of his or her own money each year on books and supplies. 80% report spending
over $1,000.
MARRIAGE PENALTY RELIEF: Married taxpayers filing jointly
will continue to benefit from full marriage penalty relief. Through 2010,
joint filers pay tax at double the single rate for the 15% rate. For 2005,
this means having the high end of the 15% bracket pegged at $59,400 (rather
than at $53,450) if Congress hadn't passed the new law. The change in
the new law in the standard deduction for married couples filing jointly
is equally as dramatic -- $10,000 in 2005 instead of $8,700. The 10% tax
bracket's upper limit for married taxpayers filing jointly stays at $14,000
($14,600 inflation indexed) for 2005 rather than dropping to $12,000 ($7000
for single filers).
TEMPORARY AMT RELIEF: The alternative minimum tax (AMT)
exemption amount remains at $42,250 for single individuals and $58,000
for married couples for one more year. Taxpayers can also use the personal
nonrefundable credits against AMT liability for one more year. Finally,
on the individual tax planning side, the tax breaks in the new law require
most people to take a very close look at the AMT. You may be liable for
AMT because the new law could reduce your regular tax liability and at
the same time increases your liability for AMT.
ARTICLE TAKEN FROM OCTOBER 2004 ISSUE OF PROFIT
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