The bill is a treasure trove of tax goodies for companies ranging from
General Electric to Plano Molding Co., a maker of tackle boxes in
Republican House Speaker Dennis Hastert's Illinois district.
Current law imposes a 10 percent excise tax on imported fishing
equipment. It seems some anglers are stowing their lines and lures in
sewing kits, which are not subject to the tax.
So Plano's representatives backed a measure to cut the tax on tackle
boxes (but not other fishing gear) to 3 percent.
Among other minutiae, bows such as those used for hunting are subject to
an 11 percent excise tax if they have a peak draw weight of 10 pounds.
The bill increases the peak draw weight to 30 pounds before a tax
applies. It also repeals the tax on all fish-finding sonar devices.
In a stroke of bad timing, the bill imposes a 75-cents-per-dose tax on
flu vaccines, to be paid by the recipient. The tax is equal to that
imposed on other childhood vaccines and will go into a vaccine injury
compensation fund.
Sen. John McCain, R-Ariz., who did not vote on the bill this week,
called it the "worst example of the influence of the special interests I
have ever seen."
What makes me livid is not just the cost of the tax breaks, but the fact
that in the midst of war and a health care crisis, our elected officials
are worried about the peak draw weight for taxable bows.
The government proposes to pay for the tax breaks, estimated at $143
billion over 10 years, mainly by closing tax loopholes and cracking down
on tax cheats.
The law provides almost no benefits to individual taxpayers in
California, but gives a big break to people in states with no state
income tax. In 2004 and 2005, people who itemize deductions can deduct
their state and local sales taxes instead of their state income taxes.
They can save their receipts and deduct their actual sales taxes, or
they can use a standard amount from a table like the ones that existed
before 1986, when everyone who itemized could deduct sales tax.
Bush/Cheney states benefit
The big winners will be higher-income people in states that have a sales
tax but no income tax: Florida, Nevada, South Dakota, Tennessee,
Washington and Wyoming. Tennessee taxes only dividend and interest
income. Alaska and New Hampshire have no income or statewide sales tax,
but Alaska has local sales taxes.
Except for Washington, all those states went for Bush/Cheney in 2000.
Florida, Nevada, New Hampshire, Tennessee and Washington are considered
swing states in the upcoming election.
People who pay no state income taxes said it wasn't fair they got no
state-tax deduction. But in California, we pay not only the
third-highest state income tax rate, but also a high sales tax. The top
state plus local sales tax rate is 8.75 percent.
Of the states with no state income tax, only Tennessee and Washington
have higher maximum sales tax rates, according to the Federation of Tax
Administrators.
No change for options
The American Jobs Creation Act of 2004 maintains the current tax treatment of incentive stock
options and employee stock purchase plans.
The Internal Revenue Service has been trying to require income tax
withholding at the time of exercise and to impose Medicare and Social
Security taxes on the profits from these plans.
That would put them on equal tax footing with nonqualified stock
options, says Bruce Brumberg, founder of Mystockoptions.com.
The bill "is a pre-emptive action by Congress should Treasury ever get
more serious about trying to tax these things," says Mark Luscombe,
principal analyst with CCH Tax and Accounting.
The new law is expected to put a big dent in the donation of cars,
usually clunkers, to charity.
Under current law, you can deduct the fair market value of a donated
car . Starting next year, you can deduct only what the charity receives
when it sells the car if the amount exceeds $500. If the charity uses
the car itself, you can deduct the appraised value.
Small businesses get a big boost in the bill. The American Jobs Creation
Act of 2004 extends for two
years a provision that quadrupled the amount of new equipment they can
write off under Section 179 of the tax code to $100,000 a year from
$25,000. It also increased the size of businesses eligible for the full
deduction from those making up to $200,000 a year in capital investments
to those making up to $400, 000.
The provision was set to expire at the end of 2005. The new act extends
it until the end of 2007, when the old limits will apply unless Congress
intervenes.
The new act does not extend a separate business -tax break that expires
Dec 31.
Known as bonus depreciation, it lets businesses of all sizes deduct 50
percent of the cost of an asset in the year it is placed into service.
The act extends bonus depreciation through the end of next year for only
one asset: small jets.
SUVs still get a break
The new tax bill reduces but does not eliminate a controversial tax
break for SUVs.
Autos generally do not qualify for bonus depreciation or Section 179
write-offs with one exception: Vehicles that weigh more than 6,000
pounds -- which include most trucks, vans and SUVs -- qualify for both.
The new act limits the Section 179 expense for SUVs to $25,000 for
property placed in service after the law's enactment date.
Bob Scharin, editor of RIA's Practical Tax Strategies, gives this
example: Suppose you buy an SUV for $50,000 and use it 75 percent of the
time for business . Under current law, you can deduct $37,500 the first
year under Section 179. Under the new law, you can deduct only $25,000
and gradually depreciate the remaining $12,500.
The new law is billed as a jobs creation act, but contains little that
requires or even encourages companies to hire workers.
Will it create new jobs? "Jobs for tax professionals, yes," says Scharin.
Related Articles:
SUV Tax Deduction Update -
MUST READ!
SUV TAX DEDUCTION LIST
American Jobs Creation Act 2004
Tax Deductible SUV
Section 179-SUV Tax Deduction
SUV Tax Deduction - Section 179
Pitfalls
SUV TAX Loophole
This article first appeared
here. |
