The act extends relief from the “marriage penalty,” expands the 10-percent tax bracket, and accelerates the higher 15- percent refundability rate to the beginning of 2004. The $1,000 child tax credit is also preserved.
Businesses should be aware of a change in deductions applying to certain sport utility vehicles (SUVs). Those placed into service prior to Oct. 23, 2004, fell under the $102,000 limit for expensing of eligible property, but the American Jobs Creation Act of 2004 limits your company to a first-year deduction of $25,000, and the remainder must be depreciated. So much for that new fleet of Humvees.
Payroll taxes are a major source of revenue for the government ($700 billion in 2003), and the IRS is becoming more aggressive in efforts to force compliance with regulations. More than $6 million in penalties (7.7 million imposed) were assessed in fiscal year 2002, based primarily on failure to pay, late payment, failure to follow deposit rules and bad checks.
If you have incurred 941 late-deposit penalties, enroll in the Electronic Federal Tax Payment System (EFTPS) at www.eftps.gov. Scheduling 941 payments automatically up to 120 days in advance of due dates will save time and frustration (no running to the bank with a check and coupon at the last minute), and after four quarters of payments, the IRS will “look back” another four quarters and remove the most-recent quarterly penalty. You must pay the penalty, but you'll receive interest on the refund.
LMSBs, or Large and Medium Sized Businesses (more than $10 million in assets), have more avenues for problem prevention and resolution, including the Pre-Filing Agreement Program for early answers on potential problems/issues. LMSBs can participate in offering issues for the Industry Issue Resolution (IIR) Program, which reviews complex, industry-specific issues to provide consistency and clarity for businesses in those industries. One issue under review last year was the determination of a valuation method for parts inventory used by heavy-equipment distributors, to facilitate correct “cost of goods sold” calculations. A request for guidance on reimbursements to employees for trucks and tools required to install cable, fiber and wiring (Equipment Rental Installers of Telecommunication Wiring) was not selected for review.
The Fast Track Settlement program uses mediation and delegated settlement authority to resolve issues for LMSBs, with the goal of reaching settlement in a maximum of 120 days. To prevent problems, these larger companies may choose a Limited Issue Focused Examination (LIFE), which streamlines examination of tax returns by focusing on the “most significant issues.” Your opinions on this program are welcomed at LMSBPostFilingDesignTeam@irs.gov.
Small businesses, with gross receipts for the past three years averaging $5 million or less, incur lower maximum penalties, but cannot take advantage of some of the special services designed for LMSBs.
Beware of claims to settle tax debts for “pennies on the dollar” through the Offer in Compromise (OIC) program. Although the IRS has authority to settle (compromise) tax liabilities by accepting less than full payment, the circumstances are very specific. They include doubt as to liability for the tax, doubt as to collectibility, and effective tax administration-an exceptional circumstance involving economic hardship, making the tax collection “unfair and inequitable.”
If your business barters for goods or services, be sure to file Form 1099-B. Both parties must report as income the “fair market value” of all commercial barter exchanges, and penalties under Code Section 6721 are significant (see IRS Publication 525, Taxable and Nontaxable Income).
Publication 17 (Your Federal Income Tax) is a 300-page overview including such timely matters as tax issues for those serving in the military and the newest amendments to the 1986 tax laws-the Working Families Tax Relief Act of 2004. For example, owners of hybrid vehicles propelled by “clean- burning fuel,” such as the Toyota Prius, qualify for a deduction of up to $2,000, provide for a deduction of up to $2,000 for 2004 and 2005, with a residual $500 in 2006. Expect to see more deductions related to environmental issues.
Be careful to prevent employee lawsuits for discrimination. For 2004, employees can claim a deduction for related attorneys' fees and court costs, even if they don't itemize. This “above-the-line” deduction qualifies as an expense related to “doing or keeping his (sic) job,” and is no longer limited by judgment or settlement amounts.
These are just a few of the issues your tax preparer must negotiate in the tax minefield this year. To double-check his or her advice, or order publications (all of which are free), simply wander through the IRS web site (www.irs.gov). After all, your government is here to help you. EC
NORBERG-JOHNSON is a former subcontractor and past president of two national construction associations. She may be reached at firstname.lastname@example.org.