Working Families Tax Relief Act

2004 Tax Acts
New Rules
New Opportunities
A WoltersKluwer Company
Two New Tax Acts
• Working Families Tax Relief Act of 2004
Signed into law by President Bush on October 4, 2004
• American Jobs Creation Act of 2004
Signed into law by President Bush on October 22, 2004
Working Families Tax Relief Act
• $146 billion in tax savings over the next 10 years
• $132 billion in tax savings for individuals
• $14 billion in tax savings for businesses
What’s Behind the Act?
• Accelerated tax cuts for individuals were set to expire
• Many business tax breaks had expired on 12/31/2003
• Technical tax corrections needed
American Jobs Creation Act
• Revenue neutral
• $145 billion in tax cuts offset by $50 billion saved by
repealing the extraterritorial income exclusion and $95
billion in increased taxes/penalties/user fees
What’s Behind the Act?
• Resolves a trade dispute with the European Union. After
the World Trade Organization ruled that an export break—
the extraterritorial income exclusion—was illegal, the
European Union retaliated by imposing increasing tariffs
on U.S. goods
• Aids domestic manufacturers
• Discourages businesses from moving abroad
Hundreds of Changes
• Almost 450 tax code changes
• Dozens of major changes effective immediately
or on 1/1/2005
Important Changes for Individuals
and Families
10% tax bracket expanded and adjusted for inflation
$1,000 child tax credit continued
Marriage penalty relief
New deductions for sales tax and attorneys’ fees
Revised definitions of “dependent”
and “head of household”
Major Changes for Businesses
New manufacturers’ deduction
Extension of expired or expiring tax benefits
New credits and new deductions
New rules for Code Sec. 179 expensing and depreciation
Limitation on deduction for entertainment expenses for
certain employees
Important Changes
for Corporations
• IRS’s authority to issue consolidated return
regulations affirmed
• Definition of “brother-sister controlled group” modified
• Limitation on importation and transfer of built-in losses
• Expanded disallowance of deduction for interest
on corporate debt
• Recognition of gain on distribution to foreign corporation
in liquidation of holding company
• “Nonqualified preferred stock” definition clarified
Major Changes
for International Transactions
• Extraterritorial income exclusion repealed
• Foreign personal holding and foreign investment company
rules repealed
• Foreign corporations exempted from personal holding
company rules
• Foreign tax credit modified
• Subpart F income modified
• Deduction for foreign earnings reinvested in U.S.
Big Changes for the Alternative
Minimum Tax on Individuals
• Increased AMT exemption amounts have been extended
to tax years beginning in 2005
• Taxpayers’ ability to use all nonrefundable personal credits
to offset their AMT liability has been extended two years
• Limitation on foreign tax credit repealed
What Will You Do to
Take Advantage of the
New Tax Breaks?
Thank You!