New Fed Tax Law

[SonomaCat]

I was reading through this today for work anyway, so I took a few notes on things that people in here might find of interest (or not).

1. There is a tax deduction for manufacturing/production activities that appears to reduce the taxes due by 3% for 2004-2005, 6% for 2005-2006, and 9% thereafter, for certain business activities. These activities include:

a. regular manufacturing
b. may include ag production (the regulations will sort that out when they come out, I am sure)
c. electricity production done in U.S.
d. construction activities done in the U.S.
e. engineering or architectural services done in U.S. for U.S. projects (some of you might find that interesting)
f. films whose compensation is at least 50% U.S. sourced (this is what I affectionately call the “F*** Canada” provision – this should be good for the Montana film industry, which has been replaced in large part by Canadian Montana-like film settings)

2. Extends the 179 deduction (write-off of otherwise depreciable property in the year of purchase) at their roughly $100,000 levels through 2005-2006. This is good for people who buy or sell equipment. Look for lots of new pickups in farm communities….

3. There’s another film incentive provision (similar to 179 above) that isn’t all that interesting except for the fact that they “explicitly” exclude porn from the qualifying productions.

4. There are some new alcohol fuel and biodiesel fuel credit provisions. Presumably this is good for the ag producers and the adoption of greater use of these alternative fuel sources.

5. Much to the chagrin of John Kerry and his foreign tax policy knowledge-impaired handlers (although I think their views are shaped more out of vote nabbing gratuitous populism that actual sincere beliefs), there is a temporary provision to allow multi-national corporation to repatriate their offshore cash while only being taxed at 5.25% instead of the usual 35% tax rate. I can go into much more detail on this if anyone is interested, but in very few words – this is a very, very good and reasonable tax policy and economic move. And, to be as dismissive of some overly cynical business writers as possible, anyone who disagrees with me on this one is just dumb.

6. We can now itemize sales taxes paid on our federal return. You have to choose between the state income tax deduction and they new sales tax deduction. This will be a mess – they are asking the IRS to develop tables to estimate the sales tax paid by people in various places based on income, family size, etc., that people could use in lieu of saving every receipt during the year. This was essentially a gift to the non-income tax states. On a Montana note, this is further fuel for the idea that maybe a sales tax regime would be a better option than keeping the high income tax rates. Of course, has Montana done away with the idiotic federal tax deduction yet (which forces the state to keep the marginal rates so high, which skews the perception of the tax rates in the state)? If not, then I’m not holding my breath on any more-complicated changes.

7. The 179 deduction limit on SUV’s was capped at $25. That seems reasonable, and is certainly an improvement over the prior law (which was $100,000).

8. New law more closely ties the amount that can be deducted when one donates a car to the actual price the charity later sells it for – no more “tell us what you want us to write down on the receipt” transactions for people donating junked cars.

9. A bunch of new provisions to shut down abusive tax shelters – a good thing in theory, but it will probably lead to more pain in the ass disclosures for everybody, including those who aren’t doing anything wrong. That seems to be the way this stuff works these days. Punish everyone for the crimes of a few.

10. There are additional provisions that apparently make corporate inversions (reincorporating overseas) and individual repatriation more difficult, among other revenue raisers. I didn’t read much about this, but I don’t have any problem with the philosophy of tightening up against those kinds of strategies.

[grizbeer]

7. The 179 deduction limit on SUV’s was capped at $25. That seems reasonable, and is certainly an improvement over the prior law (which was $100,000).

What kind of SUV can you buy for $25, a remote controlled one? Maybe a Hyundai? Just kidding, I assume it is $25k. BTW, is it only SUV's or also pick-ups that are capped?

[SonomaCat]

7. The 179 deduction limit on SUV’s was capped at $25. That seems reasonable, and is certainly an improvement over the prior law (which was $100,000).

What kind of SUV can you buy for $25, a remote controlled one? Maybe a Hyundai? Just kidding, I assume it is $25k. BTW, is it only SUV's or also pick-ups that are capped?

Ahh, yes. Forgot the K.

The law goes into lots of juicy details as to how the define it, but yes, it only applies to SUV's. Pick-ups are treated as legitimate "trucks" and don't fall under these new rules. It appears that pick-ups are not limited as long as their GVWR exceeds 6,000 lbs. If they are less than that, then they fall under a different set of rules in place for passenger autos (limits are very low for them).