The Center for Financial, Legal & Tax Planning, Inc.
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Advisories Business Succession: In a Nutshell (08-05) The Living Will (07-05) Winning the Exclusion Game (05-05) Capital Gains – Ending the Confusion on Split Rates (05-03) The Rules of Salary (05-02) Self Directed IRAs (05-01) The New Overtime Rule and Application (04-12) Conditions Are Favorable: Consider Selling Your Business Now (04-11) American Jobs Creation Act (04-10) Personal Goodwill (04-10) Depreciation and Your Business – A Helpful Guide (03-07) Keeping Records SHOULD I CONSIDER GETTING MY BUSINESS VALUED (00-03)	American Jobs Creation Act Introduction The American Jobs Creation Act of 2004 has now become law. This new tax law is the fifth major tax cut in four years and contains tax cuts of $145 billion. The benefits of this tax bill are more targeted than its predecessors. Along with the targeted benefits, the American Jobs Creation Act of 2004 patches loopholes while making the tax code more complex. The American Jobs Creation Act does the following: Manufacturer’s Deduction Given the beating United States manufacturers have taken in the past ten years regarding job creation, Congress has created new deductions for manufacturers. The effect of the deductions is that the top corporate rate will drop from 35% to 32%. Lawmakers have also expanded the definition of “manufacturer” substantially to include many more businesses that were formerly never thought of as manufacturers. Manufacturers now include software, film, and even energy production and coffee roasting companies. Small Business Expense / Depreciation Congress has extended the $100,000 Section 179 deduction through 2007. Without the deduction, the provision would have only been in effect until December 2005. Companies will be able to take an immediate tax deduction for purchases of business equipment up to $105,000 in 2005, subject to certain income limitations. SUV Loophole Congress passed a cap limiting the amount companies can deduct for automobiles. Congress never anticipated large SUVs becoming popular when the rule was passed. Formerly businesses could take advantage of this loophole. Since any vehicle over 6000 pounds qualified, the new law states that the loophole will apply to vehicles that weigh over 14,000 pounds. S Corporations S Corporations have also been reformed. The number of owners now able to own one S Corporation has been increased from 75 to 100. All family members in one family are now considered to be one shareholder. This is good news in light of the proliferation of Subchapter S Corporations and the growth that they have seen over the years. Sales Taxes In a surprise move, Congress has made state sales taxes, instead of state and local income taxes, deductible. Taxpayers must itemize to get the deduction just as they had to in the past when state and local income taxes were deductible. Taxpayers can either substantiate the expense with receipts or use federal tax tables. The bottom line is that individuals that live in states that do not have an income tax can now deduct the sales tax that they pay for purchases. Farmers Farmers also benefit from this new law. When weather forces farmers to sell livestock prematurely, farmers now have 4 years to defer gains instead of having to book the revenue within 2 years. Farmers are also allowed special income averaging for AMT. In a more controversial move, Congress has added a $10 billion buyout for tobacco farmers. Tax Shelters As part of their major crack down on tax shelters, Congress has made substantial penalties higher than what they previously were. Rules making it easier for the IRS to break abusive shelters have been established. These rules include lesser degrees of attorney-client confidentiality and codification of the meaning of economic substance. Other Charitable donations of vehicles to charities are facing more scrutiny. No longer will taxpayers be able to deduct much higher amounts (inflated valued, being devoid of reality). Congress has also added a provision eliminating deductibility of use of company aircraft. Conclusion The American Jobs Creation Act of 2004 has added quite a bit of complexity to the tax code. Through complexity, Congress has created this rule with the purpose of targeting particular issues. To receive the Advisory by e-mail, please send your address to lacie@taxplanning.com
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