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October 31, 2004
The Working Families Tax Relief Act of 2004
provides tax relief by extending several tax breaks for individuals and
businesses that had either expired or were scheduled to expire at the end of the
year.
Surprisingly, very few new provisions are included in this legislation. The
American Jobs Creation Act of 2004, on the other hand, represents one of the
largest and most comprehensive restructuring of business taxes that has occurred
in several years.
The Working Families Tax Relief Act highlights include:
Extends the $1,000 per child tax credit, the expanded 10 percent individual tax
bracket and "marriage penalty" relief through an expanded 15 percent bracket and
an increased standard deduction.
The Act also provides a slightly higher alternative minimum tax exemption for
individual taxpayers and extends the $250 expense deduction for teachers and
extends the Archer Medical Savings Account provisions through 2005. The research
development credit, work opportunity credit and welfare-to-work credit are also
extended through 2005.
The American Jobs Creation Act highlights include:
The centerpiece of the legislation is a new deduction for a percentage of
domestic manufacturing income. This new deduction is described as a domestic
manufacturing incentive, but it will also apply to construction activities,
engineering and architectural services, the production of computer software, and
a number of other "qualified production activities." The act phases-out what is
often referred to as a foreign income tax. The new deduction applies to
activities conducted within the United States and is not tied to export sales.
It is available to individuals as well as corporations and to the owners of
flow-through entities. The deduction equals three percent of qualified
production activities income for years beginning in 2005. The percentage
increases to six percent for 2006 through 2009 and to nine percent thereafter.
When fully phased in, the deduction will reduce the effective federal tax rate
for qualifying activities by approximately three percentage points for taxpayers
in the highest tax bracket.
In addition the Act also extends the Section 179 expense deduction for business
equipment through 2008, limits the deduction for charitable contributions of
vehicles after 12/31/04, adds a sales tax deduction election in place of taking
the state and local income tax deduction, changes the deduction for business
organization start-up costs, limits the maximum SUV depreciation deduction on
vehicles placed in service after 12/31/04, creates a 15 year recovery period for
restaurant equipment and certain leasehold improvements, changes the number of S
corporate shareholders permitted, and makes several changes to foreign
corporations as well as expanding the definition of related corporations in
sharing rates and exemptions. Other provisions relate to "nonqualified" plans
and tax shelters.
You should be aware that the 50 percent first-year bonus depreciation deduction
WAS NOT extended beyond 12/31/04. For this reason, you may want to purchase and
place in service equipment before the end of the year. However, if all
acquisitions total less than the $102,000 Section 179 deduction in 2004, you
will still be able to take the maximum.
Just a reminder, these are highlights only. Please call the office if you think
you will be affected by what you have read or heard. Planning can only be done
before the end of the year, so be certain of any tax affects now
Call Millian Toms at 248-541-2052 with any questions.
or
milliantoms@aol.com
Millian M. Toms
is a Royal Oak-based CPA and business advisor. She is also an active
member of the community including The Optimists and Greater Royal
Oak Chamber of Commerce.
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