TWO MORE TAX ACTS IN 2004 TO BRIGHTEN YOUR DAY!

by J. Kenneth Nowell, CPA

The Working Families Tax Relief Act of 2004

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The American Jobs Creation Act of 2004

$$$ The extension provisions $$$

Keep The Kids!

Extension of $1,000 Child Tax Credit through 2010.

10% Bracket Stays!

Extension of 10 percent tax bracket through 2010, with indexing for inflation.

Marriage penalty relief at the 15% tax bracket extended through 2010, along with relief for the standard deduction levels.

Extension of higher AMT exemption amounts through 2005.  It doesn’t solve the problem, but reduces the otherwise vast number of taxpayers potentially subject to the AMT.

Keep buying that new equipment (if you need it)!

The Sec. 179 allowance of $100,000 will be extended through 2007

Teachers still get a (small) break!

Extension of the $250 above the line deduction for qualified teacher expenditures made out-of-pocket for 2004 and 2005.

******* The new stuff *******

Welcome back to 1986!  The sales tax deduction is making a comeback, as an alternative (subject to taxpayer election) to the deduction for state income taxes.  You can either accumulate your own receipts all year, or use Treasury Dept. tables to calculate your sales tax deduction.  Big ticket items can be added to the table amounts.

The maximum Additional Child Tax Credit (for those whose regular tax is more than wiped out by nonrefundable credits) has been raised, from 10% to 15% of the amount by which earned income exceeded $10,750, effective 2004.

YIKES!!!!  While in general the Sec. 179 allowance of $100,000 will be extended through 2007, this does not apply to SUVs with Gross Vehicle Weight Ratings of 6,000 – 14,000 pounds.  These vehicles now have a separate limit within the overall limit, at $25,000 for all vehicles in service since 10/22/04.

Donate that old computer!  For tax years 2004 and 2005, businesses can donate computers and receive a writeoff equal to fair market value (even if said value exceeds basis), subject to limitations concerning qualified recipients (generally only libraries and schools).

S Corporations will now permit up to 100 shareholders, with lineal descendants and their current or former spouses combining with common ancestors to be treated as a single stockholder.

Vehicle donations are about to become more cumbersome to quantify.  Charities that immediately sell donated vehicles must inform the donor of the price received for the car, which the taxpayer will have to use.  Also, if it is not clear that the charity intends to sell the car immediately, the charity must acknowledge the perceived value of said vehicle to the taxpayer. 

Starting in 2005, there is a new set of standards for claiming children as exemptions.  A first reading of the provisions resembles more a clarification of pre-existing standards than a sweeping change in procedures.  HOWEVER, beware that there is one substantial change.  Grown-up children who return to the nest will no longer allow a single parent Head of Household status (unless he/she makes so little that he/she qualifies as a dependent).