Topics — Tax Year 2004 and Later
Under Development
Please be advised that we are working on analyzing new tax law (Public Law 108-311, Working Families Tax Relief Act of 2004, and Public Law 108-357, American Jobs Creation Act of 2004) and its effect on all of the tax forms, instructions, and publications. The large number of provisions effective this year may delay our ability to post tax law developments on this page. We apologize for the delay. -- 01-NOV-2004
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Tax Year 2004 and Later
Depreciation and Section 179 Expense
Extension of acquisition date . Property will meet the “acquisition date test” for purposes of qualifying for the 30% special depreciation allowance if the property is acquired before January 1, 2005 (extended from September 11, 2004).
Increased section 179 limits . The maximum section 179 deduction you can elect for property you placed in service in 2004 is increased from $100,000 to $102,000 for qualified section 179 property ($137,000 for qualified zone property, qualified renewal property, or qualified New York Liberty Zone property). This limit is reduced by the amount by which the cost of section 179 property placed in service during the tax year exceeds $410,000 (increased from $400,000).
More information. Publication 946, How to Depreciate Property , has more information on these rules.
Termination of Special Depreciation Rules for Property Used on Indian Reservations
The special depreciation rules that apply to qualified Indian reservation property are scheduled to expire for property placed in service after 2004.
Caution : At the time this article was written, Congress was considering legislation that would apply the special rules for property placed in service in 2005. Please check What’s Hot in Tax Forms, Pubs, and Other Tax Products to find out if this legislation was enacted.
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Electric and Clean-Fuel Vehicles
For vehicles placed in service in 2004, the maximum clean-fuel vehicle deduction and qualified electric vehicle credit are scheduled to be reduced by 25%, as compared to 2003.
Caution : At the time this article was written, Congress was considering legislation that would repeal the reduction for 2004. Please check What’s Hot in Tax Forms, Pubs, and Other Tax Products to find out if this legislation was enacted.
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Environmental Cleanup (Remediation) Costs
Beginning in 2004, environmental cleanup (remediation) costs must be capitalized. You cannot choose to deduct environmental cleanup costs paid or incurred after December 31, 2003, as a current business expense. Chapter 8 of Publication 535, Business Expenses, covers information on environmental cleanup costs.
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Indian Employment Credit
The Indian employment credit is scheduled to expire for tax years beginning after 2004.
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Meal Expense Deduction
Generally, you can deduct only 50% of your business-re-lated meal expenses while traveling away from your tax home for business purposes. Also, you can generally deduct only 50% of certain reimbursements you make to your employees for meal expenses they incur while traveling away from home on business. You can deduct a higher percentage if the meals take place during or incident to any period subject to the Department of Transportation’s “hours of service” limits. (These limits apply to workers who are under certain federal regulations.) The percentage is 70% for 2004.
Business meal expenses are covered in chapter 1 of Publication 463, Travel, Entertainment, Gift, and Car Expense. Reimbursements for employee meal expenses are covered in chapter 13 of Publication 535, Business Expenses.
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New York Liberty Zone Business Employee Credit Scheduled To Expire
The New York Liberty Zone business employee credit is scheduled to expire for wages paid to qualified employees for work performed after 2003.
Caution : At the time this article was written, Congress was considering legislation that would allow this credit with respect to work performed by qualified employees during 2004. Please check What’s Hot in Tax Forms, Pubs, and Other Tax Products to find out if this legislation was enacted.
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Issuance of Qualified Zone Academy Bonds Scheduled To Expire
State and local governments issue qualified zone academy bonds to raise funds for the use of certain eligible public schools. The national qualified academy zone bond limit for 2003 was $400 million, but is zero for 2004 (excluding any carryover limitation).
Caution : At the time this article was written, Congress was considering legislation that would establish a national limitation amount for 2004. Please check What’s Hot in Tax Forms, Pubs, and Other Tax Products to find out if this legislation was enacted.
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Self-Employment Tax
The self-employment tax rate on net earnings remains the same for 2004. This rate, 15.3%, is a total of 12.4% for social security (old-age, survivors, and disability insurance) and 2.9% for Medicare (hospital insurance).
The maximum amount subject to the social security part for tax years beginning in 2004 has increased to $87,900. All net earnings of at least $400 are subject to the Medicare part.
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Social Security and Medicare Taxes
For 2004, the employer and employee will continue to pay:
- 6.2% each for social security tax (old-age, survivors, and disability insurance), and
- 1.45% each for Medicare tax (hospital insurance).
Wage limits. For social security tax, the maximum amount of 2004 wages subject to the tax has increased to $87,900. For Medicare tax, all covered 2004 wages are subject to the tax. Circular E (Publication 15), Employer's Tax Guide, has more information about these taxes.
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Standard Mileage Rate
For 2004, the standard mileage rate for the cost of operating your car, van, pickup, or panel truck is increased to 37.5 cents a mile for all business miles.
Standard mileage rate available for small fleets. Beginning in 2004, the business standard mileage rate may be used for as many as four vehicles that you own or lease and use simultaneously.
Car expenses and use of the standard mileage rate are explained in chapter 4 of Publication 463, Travel, Entertainment, Gift, and Car Expenses.
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Work Opportunity Credit and Welfare-to-Work Credit Scheduled to Expire
The work opportunity credit and the welfare-to-work credit are scheduled to expire for wages paid to individuals who began working for you after 2003.
Caution : At the time this article was written, Congress was considering legislation that would allow these credits with respect to employees who began work for you in 2004. Please check What’s Hot in Tax Forms, Pubs, and Other Tax Products to find out if this legislation was enacted.
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Page last updated -- 01-Nov-2004
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