Topics — Tax Year 2003
Topics — Tax Year 2004 and Later
Depreciation and
Section 179 expense
Electric and clean-fuel
vehicles
Environmental
cleanup costs
Indian employment
credit
New York Liberty Zone
business employee credit
Qualified Zone
academy bonds
Meal expense deduction
Self-employment tax
Social security and
Medicare taxes
Standard mileage rate
Work Opportunity
Credit and Welfare-to-Work Credit
Tax Year 2003
Applying for an Employer Identification Number (EIN)
Beginning in January 2004, when you apply for an
Employer Identification Number (EIN) (on Form SS-4, by
TeleTIN, or Online Application) and are expected to
have a Federal tax obligation, you will be
automatically pre-enrolled in Electronic Federal Tax
Payment System (EFTPS) in order to make your Federal
tax deposits. When you receive your EIN, you will also
receive a separate mailing containing instructions for
activating your EFTPS enrollment. You will still have
the option to order Federal Tax Deposit coupons from
the Internal Revenue Service by calling
1-800-829-4933. You can get more information about
EFTPS by visiting the EFTPS
website.
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Marginal Production of Oil and Gas
The suspension of the taxable income limit on
percentage depletion from the marginal production of
oil and natural gas has been extended to tax years
beginning before 2004. For more information on
marginal production, see section 613A(c) of the
Internal Revenue Code.
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Self-employed Health Insurance Deduction
Beginning in 2003, the self-employed health
insurance deduction percentage increases to 100%.
Chapter 7 of Publication
535, Business Expenses, has more information.
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Self-Employment Tax
The self-employment tax rate on net earnings
remains the same for 2003. This rate, 15.3%, is a
total of 12.4% for social security (old-age,
survivors, and disability insurance) and 2.9% for
Medicare (hospital insurance).
The maximum amount subject to the social security
part for tax years beginning in 2003 has increased to
$87,000. All net earnings of at least $400 are subject
to the Medicare part.
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Standard Meal and Snack Rates for Family Daycare
Providers
For tax years beginning in 2003, instead of using
actual costs, family daycare providers can use the
standard meal and snack rates to compute the
deductible cost of meals and snacks provided to
eligible children. The standard meal and snack rates
can be used for a maximum of one breakfast, one lunch,
one dinner, and three snacks per eligible child per
day. However, a family daycare provider who receives
reimbursement for a particular meal or snack can
deduct only the portion of the applicable standard
meal or snack rate that exceeds the amount of the
reimbursement.
Family daycare providers.
A family daycare provider is a person engaged in the
business of providing family daycare.
Family daycare.
Family daycare is childcare provided to eligible
children in the home of the family daycare provider
that meets all of the following.
- The childcare is non-medical.
- A transfer of legal custody is not involved.
- The childcare generally lasts for less than 24
hours each day.
Eligible children.
Eligible children are minor children receiving daycare
in the home of the family daycare provider. Eligible
children do not include children who are full-time or
part-time residents in the home where the childcare is
provided or children whose parents or guardians are
residents of the same home.
Example. A family daycare
provider's own children, and any children who live in
the family daycare provider's home on a full- or
part-time basis, are not eligible children, even if
they receive daycare services from the family daycare
provider.
Standard Meal and Snack Rates for
2003
| Location
of Family Daycare Provider |
Breakfast |
Lunch
and Dinner |
Snack |
|
States other than Alaska and
Hawaii
|
$0.98 |
$1.80 |
$0.53 |
|
Alaska
|
$1.55 |
$2.93 |
$0.87 |
|
Hawaii
|
$1.13 |
$2.11 |
$0.63 |
A family daycare provider who chooses to use the
standard meal and snack rates for a particular tax
year must use the rates for all deductible food costs
for eligible children during that tax year.
Updates to the standard meal and snack rates may be
found at the following websites: http://www.irs.gov/businesses/small/index.html
and www.fns.usda.gov/cnd/care.
More information on family daycare providers can be
found in Publication
587, Business Use of Your Home.
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Standard Mileage Rate
The standard mileage rate for the cost of operating
your car, van, pickup, or panel truck in 2003 is 36
cents a mile for all business miles.
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Capital Gains — Announcement 2003-56
Announcement 2003-56, Changes
to Reporting Requirements for Certain 2002 Forms
Because of Changes in the Capital Gains Tax Rates,
explains necessary modifications to 2002 returns
affected by the change in the capital gains tax rates
after May 5, 2003. See Announcement
2003-56 for more information. 12-SEP-2003
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Corporation estimated tax payments
The
installment due date for 25% of any corporate
estimated tax payment otherwise due in September 2003
has been changed to October 1, 2003. The due date for
the remaining 75% of the September 2003 estimated tax
payment has not changed.
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Depreciation and Section 179 Expense
50% special depreciation allowance.
For qualified property you acquire after May 5, 2003,
you can take a special depreciation allowance that is
equal to 50% of the property's depreciable basis.
However, instead of claiming the 50% special
allowance, you can elect to claim the 30% special
allowance or elect not to claim any special allowance.
Note:
If you acquire qualified property in a like-kind
exchange or involuntary conversion, the carried-over
basis of the acquired property is eligible for a
special depreciation allowance.
Increased Section 179 limit. The
maximum section 179 deduction you can elect for
property you placed in service in 2003 has increased
from $24,000 to $100,000 for qualified section 179
property ($135,000 for qualified zone property,
qualified renewal property, or qualified New York
Liberty Zone property). This limit is reduced by the
amount by which the cost of section 179 property
placed in service during the tax year exceeds $400,000
(increased from $200,000).
Off-the-shelf computer software.
The definition of section 179 property has been
expanded to include off-the-shelf computer software
placed in service in 2003. This is computer software
that is readily available for purchase by the general
public, is subject to a nonexclusive license, and has
not been substantially modified. It includes any
program designed to cause a computer to perform a
desired function, However, a database or similar item
is not considered computer software unless it is in
the public domain and is incidental to the operation
of otherwise qualifying software.
Section 179 expense election. A
section 179 expense election (or any specification
made in the election) made after 2002 can be revoked
without IRS approval by filing an amended return.
However, once made, the revocation is irrevocable.
Depreciation limits on passenger
automobiles. The total depreciation deduction
(including the section 179 expense and the special
depreciation allowance) you can take for a passenger
automobile (that is not a truck or van or an electric
vehicle) that you use in your business and first place
in service in 2003 is:
- $7,660 if acquired before May 6, 2003, and you
claim the 30% special allowance;
- $10,710 if acquired after May 5, 2003, and you
claim the 50% or 30% special allowance; or
- $3,060 if you elect not to claim any special
allowance for the vehicle or the vehicle is not
qualified property, or the vehicle is qualified
Liberty Zone property.
Caution: The limits
are reduced if the business use of the vehicle is
less than 100%.
Depreciation limits on electric vehicles.
The total depreciation deduction (including the
section 179 expense and the special depreciation
allowance) you can take for an electric vehicle that
you use in your business and first place in service in
2003 is:
- $22,880 if acquired before May 6, 2003, and you
claim the 30% special allowance;
- $32,030 if acquired after May 5, 2003, and you
claim the 50% or 30% special allowance; or
- $9,080 if you elect not to claim any special
allowance for the vehicle or the vehicle is not
qualified property, or the vehicle is qualified
Liberty Zone property.
Caution: The limits
are reduced if the business use of the vehicle is
less than 100%.
Depreciation limits on truck or van.
The total depreciation deduction (including the
section 179 deduction and the special depreciation
allowance) you can take for a truck or van (such as a
minivan or a sports utility vehicle built on a truck
chassis) that you use in your business and first place
in service in 2003 is higher than for other passenger
vehicles. The maximum amount allowable is:
- $7,960 if acquired before May 6, 2003, and you
claim the 30% special allowance;
- $11,010 if acquired after May 5, 2003, and you
claim the 50% or 30% special allowance; or
- $3,360 if you elect not to claim any special
allowance for the vehicle or the vehicle is not
qualified property, or the vehicle is qualified
Liberty Zone property.
Caution: The limits are
reduced if the business use of the vehicle is less
than 100%.
Exclusion of qualified nonpersonal use
trucks and vans from definition of passenger
automobiles. A truck or van placed in service
after July 6, 2003, that is a “qualified nonpersonal
use vehicle” is not considered to be a passenger
automobile (and is therefore not subject to the
passenger automobile limits). A truck or van is a
qualified nonpersonal use vehicle only if it has been
specially modified with the result that it is not
likely to be used more than a de minimis amount for
personal purposes. For example, a van that has only a
front bench for seating, in which permanent shelving
has been installed, that constantly carries
merchandise or equipment, and that has been specially
painted with advertising or the company's name, is a
vehicle not likely to be used more than a de minimus
amount for personal purposes.
More information. Publication
946, How to Depreciate Property, has more
information on depreciation methods and rules.
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Extension of Time To Take Advantage of Certain Tax
Relief for Tax Years That Include September 11, 2001
Time to claim special depreciation
allowances. For your tax year that included
September 11, 2001, you may have until December 31,
2003, to:
- Claim the 30% special depreciation allowance (or
Liberty Zone depreciation allowance),
- Elect the increased section 179 expense
deduction for Liberty Zone property, or
- Depreciate Liberty Zone leasehold improvement
property as 5-year property using the
straight-line method of depreciation.
You may be eligible if:
- You placed qualified property (or Liberty Zone
property) in service during your tax year,
- You timely filed your return for your tax year
without claiming the special depreciation
allowance or increased section 179 expense
deduction, and
- You did not make an election not to claim the
30% special depreciation allowance.
If eligible, file an amended return for your tax
year that included September 11, 2001, and any later
affected tax years. In some situations, you may have
to file Form
3115, Application for Change in Accounting Method.
Use the procedures outlined in Rev.
Proc. 2003-50, 2003-50 IRB 119.
Half-year convention. You may be
eligible for additional time to elect to apply the
half-year convention instead of the mid-quarter
convention to all property placed in service during
your 2000 fiscal year or 2001 calendar or fiscal year,
if:
- The third or fourth quarter of your tax year
included September 11, 2001;
- You otherwise would have been required to use
the mid-quarter convention under MACRS;
- You timely filed your return for your tax year
without making the election.
If eligible, you can make the election and any
necessary adjustments resulting from the election by
filing, by December 31, 2003, an amended return for
your tax year that included September 11, 2001, and
any later affected tax years. For more information,
see Notice
2003-45, 2003-29 I.R.B. 86. -- 10-OCT-2003
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Commercial Fishermen: Nonqualified Capital
Construction Fund Withdrawals
For tax years ending after May 5, 2003, the maximum
tax rate applied to nonqualified withdrawals from the
capital gain account in a capital construction fund
decreases from 20% to 15%. -- 21-OCT-2003
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Tax Year 2004 and Later
Depreciation and Section 179 Expense
Extension of acquisition date .
Property will meet the “acquisition date test” for
purposes of qualifying for the 30% special
depreciation allowance if the property is acquired
before January 1, 2005 (extended from September 11,
2004).
Increased section 179 limits . The
maximum section 179 deduction you can elect for
property you placed in service in 2004 is increased
from $100,000 to $102,000 for qualified section 179
property ($137,000 for qualified zone property,
qualified renewal property, or qualified New York
Liberty Zone property). This limit is reduced by the
amount by which the cost of section 179 property
placed in service during the tax year exceeds $410,000
(increased from $400,000).
More information. Publication
946, How to Depreciate Property , has more
information on these rules.
Termination of Special Depreciation Rules for
Property Used on Indian Reservations
The special depreciation rules that apply to
qualified Indian reservation property are scheduled to
expire for property placed in service after 2004.
Caution : At the time this article
was written, Congress was considering legislation that
would apply the special rules for property placed in
service in 2005. Please check What’s
Hot in Tax Forms, Pubs, and Other Tax Products to
find out if this legislation was enacted.
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Electric and Clean-Fuel Vehicles
For vehicles placed in service in 2004, the maximum
clean-fuel vehicle deduction and qualified electric
vehicle credit are scheduled to be reduced by 25%, as
compared to 2003.
Caution : At the time this article
was written, Congress was considering legislation that
would repeal the reduction for 2004. Please check
What’s
Hot in Tax Forms, Pubs, and Other Tax Products
to find out if this legislation was enacted.
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Environmental Cleanup (Remediation) Costs
Beginning in 2004, environmental cleanup
(remediation) costs must be capitalized. You cannot
choose to deduct environmental cleanup costs paid or
incurred after December 31, 2003, as a current
business expense. Chapter 8 of Publication
535, Business Expenses, covers information on
environmental cleanup costs.
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Indian Employment Credit
The Indian employment credit is scheduled to expire
for tax years beginning after 2004.
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Meal Expense Deduction
Generally, you can deduct only 50% of your
business-re-lated meal expenses while traveling away
from your tax home for business purposes. Also, you
can generally deduct only 50% of certain
reimbursements you make to your employees for meal
expenses they incur while traveling away from home on
business. You can deduct a higher percentage if the
meals take place during or incident to any period
subject to the Department of Transportation’s
“hours of service” limits. (These limits apply to
workers who are under certain federal regulations.)
The percentage is 70% for 2004.
Business meal expenses are covered in chapter 1 of Publication
463, Travel, Entertainment, Gift, and Car Expense.
Reimbursements for employee meal expenses are covered
in chapter 13 of Publication
535, Business Expenses.
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New York Liberty Zone Business Employee Credit
Scheduled To Expire
The New York Liberty Zone business employee credit
is scheduled to expire for wages paid to qualified
employees for work performed after 2003.
Caution : At the time this article
was written, Congress was considering legislation
that would allow this credit with respect to work performed
by qualified employees during 2004. Please check
What’s
Hot in Tax Forms, Pubs, and Other Tax Products to
find out if this legislation was enacted.
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Issuance of Qualified Zone Academy Bonds Scheduled
To Expire
State and local governments issue qualified zone
academy bonds to raise funds for the use of certain
eligible public schools. The national qualified
academy zone bond limit for 2003 was $400 million, but
is zero for 2004 (excluding any carryover
limitation).
Caution : At the time this article
was written, Congress was considering legislation
that would establish a national limitation amount for
2004. Please check What’s
Hot in Tax Forms, Pubs, and Other Tax Products to
find out if this legislation was enacted.
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Self-Employment Tax
The self-employment tax rate on net earnings
remains the same for 2004. This rate, 15.3%, is a
total of 12.4% for social security (old-age,
survivors, and disability insurance) and 2.9% for
Medicare (hospital insurance).
The maximum amount subject to the social security
part for tax years beginning in 2004 has increased to
$87,900. All net earnings of at least $400 are subject
to the Medicare part.
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Social Security and Medicare Taxes
For 2004, the employer and employee will continue
to pay:
- 6.2% each for social security tax (old-age,
survivors, and disability insurance), and
- 1.45% each for Medicare tax (hospital
insurance).
Wage limits. For social security tax, the
maximum amount of 2004 wages subject to the tax has
increased to $87,900. For Medicare tax, all covered
2004 wages are subject to the tax. Circular
E (Publication 15), Employer's Tax Guide, has more
information about these taxes.
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Standard Mileage Rate
For 2004, the standard mileage rate for the cost of
operating your car, van, pickup, or panel truck is
increased to 37.5 cents a mile for all business miles.
Standard mileage rate available for small
fleets. Beginning in 2004, the business standard
mileage rate may be used for as many as four vehicles
that you own or lease and use simultaneously.
Car expenses and use of the standard mileage rate
are explained in chapter 4 of Publication
463, Travel, Entertainment, Gift, and Car Expenses.
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Work Opportunity Credit and Welfare-to-Work Credit
Scheduled to Expire
The work opportunity credit and the welfare-to-work
credit are scheduled to expire for wages paid to
individuals who began working for you after 2003.
Caution : At the time this article
was written, Congress was considering legislation
that would allow these credits with respect to employees
who began work for you in 2004. Please check
What’s
Hot in Tax Forms, Pubs, and Other Tax Products to
find out if this legislation was enacted.
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