Have you ever had a problem communicating with the IRS?

Here is one taxpayer's reply after the IRS denied his deduction.

		Edward F. Connelly, Certified Public Accountant The CPA Firm on Route 128SM   2004 TAX LAW CHANGES Internal Revenue Service ( IRS ) Tax Law Changes for Businesses   Topics — Tax Year 2004

• Standard Mileage Rate
• Meal Expenses When Subject to Hours of Service Limits
• Electric and Clean-Fuel Vehicles
• Environmental Cleanup (Remediation) Costs
• Depreciation and Section 179 Expense
• Work Opportunity Credit and Welfare-to-Work Credit Scheduled to Expire
• New York Liberty Zone Business Employee Credit Scheduled To Expire
• Qualified Zone Academy Bonds Scheduled To Expire
• Social Security and Medicare Taxes
• Self-Employment Tax

---

Tax Years 2004 and later

Standard Mileage Rate

Business-related mileage.   For 2004, the standard mileage rate for the cost of operating your car, van, pickup, or panel truck increases from 36 cents a mile to 37½ cents a mile for all business miles.

  Car expenses and use of the standard mileage rate are explained in chapter 4 of Publication 463, Travel, Entertainment, Gift, and Car Expenses.

Meal Expenses When Subject to “Hours of Service” Limits

Generally, you can deduct only 50% of your business-related 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 increases to 70% for 2004. Business meal expenses are covered in chapter 1 of Publication 463, Travel, Entertainment, Gift, and Car Expenses. Reimbursements for employee meal expenses are covered in chapter 13 of Publication 535, Business Expenses.

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.



At the time this publication was issued, Congress was considering legislation that would repeal the reduction for 2004. See What's Hot in Tax Forms, Pubs, and Other Tax Products at www.irs.gov/formspubs/index.html to find out if this legislation was enacted.

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. For more information on environmental cleanup costs, see chapter 8 in Publication 535, Business Expenses.

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 (see chapter 3 of Publication 946, How To Depreciate Property) 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 place 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). See chapter 2 of Publication 946.

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.



At the time this publication was issued, Congress was considering legislation that would allow these credits with respect to employees who began work for you in 2004. See What's Hot in Tax Forms, Pubs, and Other Tax Products at www.irs.gov/formspubs/index.html to find out if this legislation was enacted.

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.



At the time this publication was issued, Congress was considering legislation that would allow this credit with respect to work performed by qualified employees during 2004. See What's Hot in Tax Forms, Pubs, and Other Tax Products at www.irs.gov/formspubs/index.html to find out if this legislation was enacted.

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).



At the time this publication was issued, Congress was considering legislation that would establish a national limitation amount for 2004. See What's Hot in Tax Forms, Pubs, and Other Tax Products at www.irs.gov/formspubs/index.html to find out if this legislation was enacted.

Social Security and Medicare Taxes

For 2004, the employer and employee will continue to pay:

1. 6.2% each for social security tax (old-age, survivors, and disability insurance), and

2. 1.45% each for Medicare tax (hospital insurance).

Wage limits.    For social security tax, the maximum amount of 2004 wages subject to the tax increases to $87,900. For Medicare tax, all covered 2004 wages are subject to the tax. For information about these taxes, see Circular E (Publication 15), Employer's Tax Guide.

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 increases to $87,900. All net earnings of at least $400 are subject to the Medicare part.

Other Changes

Depreciation

Extension of time to claim the 30% special depreciation allowance.   You still may be eligible to claim the 30% special depreciation allowance for a tax year that included September 11, 2001, if you meet the following requirements.

• You timely filed your tax return for that tax year.

• You did not claim the 30% special depreciation allowance (or special Liberty Zone depreciation allowance) for qualified property (or qualified Liberty Zone property) placed in service during that tax year.

• You did not make an election not to claim the special allowance.

  If you have not filed your tax return for the first tax year following your tax year that included September 11, 2001, and you owned the property as of the first day of that tax year, file Form 3115, Application for Change in Accounting Method, with your timely filed tax return for that year.

  If you filed your tax return for the first tax year following your tax year that included September 11, 2001, before July 22, 2003, you owned the property as of the first day of that tax year, and the second succeeding tax year after your tax year that included September 11, 2001, ends before August 1, 2004, file Form 3115 with your timely filed tax return for that second succeeding tax year.

  Write “Automatic Change Filed Under Rev. Proc. 2003-50” on the appropriate line of Form 3115. For more information, see Revenue Procedure 2003–50 in Internal Revenue Bulletin 2003–29.