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2004 Working Families Tax Relief Act:
Business Provisions
The new tax cut package that Congress passed on
September 23 contains as many business-related provisions as it
does individual, personal tax relief. While the title of the new
law is The Working Families Tax Relief Act of 2004, it helps
businesses as well as individuals. What began as a tax bill to
raise the child tax credit exploded into a much larger bill as
lawmakers worried that it might be the last tax cut for 2004. Many
tax breaks for businesses had to be extended, key members of
Congress argued. The Working Families Tax Relief Act presented
Congress with the opportunity to accomplish these business
extensions. If it were not for this new law, you and other
businesses might have lost out on more than 30 tax breaks.
This article outlines some major details about the new law, from
the business perspective. Of course, your personal income taxes
also have been lowered, making the combination of personal and
business tax breaks a significant benefit.
Extended Tax Relief
The new law extends more than 30 business tax incentives. Here are
some of the major extensions:
 | The research and development tax 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 some of America's biggest
companies. They had lobbied for an expansion of the research tax
credit, but came away with only an extension.
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| The welfare-to-work and work opportunity tax
credits are extended for wages paid or incurred for qualified
individuals starting work after 2003 and before 2006. Many
businesses have been lobbying for extensions of these two
credits, which reward employers for hiring economically
disadvantaged individuals. The WOTC can reach as high as $2,400
for each employee. The maximum welfare-to-work credit is $8,500
per employee.
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| The enhanced deduction for charitable
contributions of qualified candidates is extended for
contributions made in tax years beginning after 2003 and before
2006. Donations generally must be made to libraries and schools.
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| The teacher's classroom expense deduction 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 deduction
had expired at the beginning of this year. The new law extends
it for 2004 and 2005. The average teacher reportedly spends
about $450 of his or her own money each year on books and
supplies. Eighty percent report spending $1,000 or more.
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| Contributions to Archer Medical Savings
Accounts (MSAs) are extended through 2004 and 2005. Archer MSAs
have not fulfilled the initial vision of many lawmakers.
Participation has lagged and now they have a new competitor.
Health Savings Accounts (HSAs). MSA balances may be rolled over
into HSAs.
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| The expensing of environmental remediation
costs is extended for expenses paid or incurred after 2003 and
before 2006.
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| The renewable-source energy credit is
extended for tax years beginning after 2003 and before 2006.
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| Suspension of the marginal-well net-income
limitation is extended for tax years beginning after 2003 and
before 2006.
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| The credit phase-out for qualified electric
and clean fuel vehicles is ignored for property acquired in 2004
and 2005.
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| Qualified Zone Academy Bonds receive special
treatment through 2005. |
Technical Corrections
The new law also devotes an entire section to
"Technical Corrections." They impact 15 major issues about
interpretations of tax laws that have been changed over the past
10 years. The majority of these corrections make substantive tax
law changes that affect businesses. The most important provisions
include:
| Health savings accounts. Amounts distributed
from HSAs are not counted in determining the amount of health
coverage tax credit an individual is eligible to receive.
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| Dividend rate. The new law clarifies that the
extraordinary dividend rule applies to trusts and estates as
well as individuals. It also explains the 2002-2003 transition
rules.
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| Stock holding period. The new law permits
taxpayers to satisfy the stock holding period requirements when
they acquire stock on the day before the ex-dividend date.
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| Bonus depreciation. Bonus depreciation
property includes property subject to the section 263A
capitalization rules by reason of having a long useful life.
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| Five-year NOL carryback. Only NOLs arising in
tax years ending in 2001 and 2002 qualify for the five-year NOL
carryback period. |
Other Issues
Some important tax cuts are not in the new law. This doesn't mean
they should be forgotten. Because they are expiring soon, time is
running out to take advantage of them. Among the biggest in this
category are section 179 expensing and bonus depreciation.
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 is will not be
extended.
I hope that this information helps to introduce you to the
business tax benefits extended and enhanced by the new tax law.
Please call us if you need any further details on how one or more
of these new provisions benefits your business.
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