23 Vreeland Road Suite 102
Florham Park, NJ 07932

January 6, 2005

This newsletter is a very broad overview of The American Jobs Creation Act of 2004 most of which took effect January 1, 2005. Although mainly directed toward large businesses and more full of special interest provisions than any tax legislation I have seen in 20 years (grinding coffee qualifies for tax breaks as manufacturing for Starbucks, a special provision for a tax break on importing ceiling fans for Home Depot, et cetera) there are several provisions affecting individuals and small or closely-held businesses. The new law:

  • creates a new deduction - with potentially widespread applicability - for businesses having income "attributable to domestic production activities";
  • extends the increase in the small business expensing allowance to 2008 instead of expiring in 2006;
  • liberalizes the rules governing S corporations;
  • permits an itemized deduction of state and local sales taxes in lieu of state and local income taxes (effective for tax years 2004 and 2005).
  • limits the annual expensing allowance for sport utility vehicles placed in service after October 11, 2004 to $25,000;
  • starting January 1, 2005, imposes tighter rules on taxpayers who want to claim a deduction of more than $500 for motor vehicles, boats, or airplanes donated to charity;
  • imposes tighter rules for documenting charitable contributions of property (other than cash and marketable securities) made after June 3, 2004;
  • toughens the rules for "nonqualified" deferred compensation plans that are used by business owners and other executives as a supplement to, or in lieu of, the "qualified" retirement plans generally available to its employees. More details about the changes will be in future newsletters.