CCH can assist you with stories, including interviews with CCH subject experts. Also, the 2005 CCH Whole Ball of Tax is available in print. Please contact:
 
Leslie Bonacum
(847) 267-7153
mediahelp@cch.com
 
Neil Allen
(847) 267-2179
allenn@cch.com

Link to special CCH Tax Briefings on key topics from 2004:
 

• American Jobs Creation Act
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• Working Families Tax Relief Act
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2004 Brought Sweeping Tax Law Changes Benefiting Businesses, Individuals

(RIVERWOODS, ILL., January 2005) – Congress surprised almost everyone in 2004, acting twice in two months to pass tax legislation benefiting taxpayers of all kinds, according to CCH INCORPORATED (CCH), a leading provider of tax and accounting information, software and services (tax.cchgroup.com).

The Working Families Tax Relief Act of 2004, passed in September, extended the life of popular tax reductions that were due to expire at the end of 2004, and staved off a tax "increase" for virtually all taxpayers. The Act also gave a reprieve to expiring business and special-interest tax breaks, tidied up the tax code and offered a further one-year "fix" on the alternative minimum tax.

Just weeks after passing that bill, Congress acted again, and in October passed a second, more comprehensive tax bill, giving ordinary taxpayers, as well as businesses of all sizes, plenty to think about as the tax year wound down.

The American Jobs Creation Act of 2004, at first designed to eliminate what the World Trade Organization (WTO) had declared to be an illegal tax subsidy for American goods sold abroad, gave individual taxpayers the option of deducting state and local sales taxes on their federal returns, extended favorable treatment for purchases of business equipment, allowed many companies an additional deduction on their corporate returns and provided a range of smaller tax benefits to everyone from traditional whaling captains in Alaska to the manufacturers of fish-finding sonar.

The following provides an overview of key provisions of both bills. For more detail on the new laws, access CCH’s Tax Briefings online at http://tax.cchgroup.com/Tax-Briefings.

The Working Families Tax Relief Act of 2004 extended the life of four popular "middle class" tax breaks. The child tax credit is extended at its current $1,000 per child level, the 10-percent income tax bracket will stay at its current level (adjusted for inflation) and two "marriage tax penalty relief" measures will not decrease next year. In effect, the Act smoothes out ups and downs in these tax benefits to keep them in effect at basically their current level through 2010.

• Alternative Minimum Tax (AMT) relief

The Act provided for a one-year extension for individual alternative minimum tax (AMT) relief in the form of an expanded exemption and extended the ability to apply non-refundable personal credits against the alternative tax for 2004 and 2005.

• Other extensions

The Act also contained a one-year extension of many expiring credits affecting businesses and a select number of individuals, including the research and development tax credit, the welfare-to-work and work opportunity tax credits, extension of Liberty Zone bonds for New York City and tax incentives for investment in the District of Columbia. Extensions of provisions affecting a relatively small number of individuals included a credit for electric cars, deduction for clean-fuel vehicles and an above-the-line deduction for teacher classroom expenses.

• Tidying up

Some 25 pages of the Act were devoted to general clean-up, or "technical corrections" in tax law parlance. Congress also used the Act to tidy up some messy bits of the tax code. One major effort was to arrive at a unified definition of a "qualified child" for the purposes of the dependency exemption, the child credit, the earned income credit, the dependent care credit and head of household filing status. Each of these provisions had defined "child" somewhat differently in the past. Different provisions – notably, the child credit – will continue to use different ages as cut-offs in their definition of a "qualified child," but in general tests involving residency and relationship to the taxpayer will be the same across the board.

At its core, the Act repealed an exclusion for extraterritorial income that had concerned European trading partners and that, in the wake of the WTO decision, led to escalating tariffs on U.S. goods sold in Europe. The repeal phases in over three years. As compensation for the lost exclusion, companies received a deduction based on their income attributable to domestic manufacturing. This deduction, phasing in between 2005 and 2010, would effectively lower the tax rate on income attributable to domestic manufacturing. The Act also contains an incentive to repatriate foreign earnings.

• Plan ballooned into complex bill

The Act, the biggest single piece of tax legislation passed by Congress since 1997’s Taxpayer Relief Act, weighed in at about 650 pages, making 549 amendments to the tax code and adding 37 new sections. Many provisions in the new law require immediate action to maximize benefits. Effective dates, however, are all over the map. To pay for all the incentives, reforms and simplifications, the legislation contains an estimated 61 revenue-raising provisions, mainly aimed at perceived abuses and tax shelters.

• Small businesses benefit

Businesses will be able to directly write off, or "expense," rather than depreciate, up to $100,000 a year (adjusted for inflation since 2003) in equipment purchases during 2006 and 2007 under what is known as Section 179 of the tax code. This level of Section 179 expensing was due to shrink to $25,000 at the end of 2005. The Act also narrowed a loophole in the expensing rules that allowed the complete write-off of many large SUVs, however. Unlike normal cars, which must be depreciated over several years, SUVs with gross weights of more than 6,000 pounds were eligible for expensing under Section 179. The Act provided that only $25,000 of the cost of an SUV may be expensed.

• Individuals reap rewards

Generally taxpayers in states with no income tax – or high sales taxes – make up the biggest group of individuals to benefit from the legislation. Beginning with 2004’s tax return and continuing through the 2005 tax year, they now have the option of deducting the state sales and use tax they pay in lieu of the deduction for state income tax. The sales tax provision will be of greatest interest to residents of states with no income tax, but those living in states with low income taxes might also benefit with passage of the legislation.

Congress also did not forget a number of classes of individuals in forging the American Jobs Creation Act. For example, rural mail carriers would be able to deduct more of the expenses related to the vehicles they use on their routes. People who win employment discrimination suits would be able to deduct their attorney’s fees as an above-the-line deduction, avoiding problems with the alternative minimum tax that have arisen under the current rule, which requires the fees to be taken as a miscellaneous itemized deduction. Native Alaskans who incur certain expenses in outfitting subsistence whale hunts would be able to take a charitable deduction of up to $10,000.

CCH INCORPORATED (tax.cchgroup.com), based in Riverwoods, Ill., is a leading provider of tax and accounting information, software and services. It has served tax, accounting and business professionals and their clients since 1913. CCH is a Wolters Kluwer company (www.wolterskluwer.com).

Wolters Kluwer is a leading multinational publisher and information services company. The company’s core markets are spread across the health, tax, accounting, corporate, financial services, legal and regulatory, and education sectors. Wolters Kluwer has annual revenues (2003) of €3.4 billion, employs approximately 18,750 people worldwide and maintains operations across Europe, North America and Asia Pacific. Wolters Kluwer is headquartered in Amsterdam, the Netherlands. Its depositary receipts of shares are quoted on the Euronext Amsterdam (WKL) and are included in the AEX and Euronext 100 indices.

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EDITOR’S NOTE: Copies of CCH’s authoritative resources on the Working Families Tax Relief Act and American Jobs Creation Act are available to members of the press on a complimentary basis. Please contact Leslie Bonacum at 847-267-7153 or mediahelp@cch.com or Neil Allen at 847-267-2179 or allenn@cch.com for copies.