AMERICAN JOBS CREATION ACT OF 2004

Corporate Taxpayers - Click HERE

This act, or the porkbelly tax cut, as it is known, was recently signed by President Bush. Although this act concentrates on giving corporations greater ability to avoid paying taxes, there are some changes for individuals as well.

For 2004 and 2005, the Act allows taxpayers to deduct state and local sales taxes instead of state income taxes. Taxpayers may deduct their actual sales taxes or use IRS-published tables.

This portion of the Act specifically benefits taxpayers in states with little or no state taxes. Two such states are Florida and Texas, coincidentally the state where the President's brother is governor and the home state of the President. For those living in high state tax states such as California and New York, this portion of the Act provides no benefit.

The remaining portions of the Act mostly benefit Corporations. As has been shown recently, only about 20% of corporations actually pay tax.

Here are the bill's major provisions affecting individuals:

Sales Taxes. The new sales-tax provision will be effective for this year and for 2005. Including this change helped win support for the legislation from lawmakers in states with no state income tax. Moreover, making such a change was important as "a matter of fairness" to taxpayers in those states with no state or local income taxes, says Rep. George Nethercutt, a Washington State Republican who is running for the U.S. Senate against incumbent Patty Murray, a Democrat -- who also voted for the legislation.

To figure the sales-tax deduction amount, taxpayers can use their actual receipts for purchases, or they can use tables that the Internal Revenue Service will provide. The tables will be based on average spending by taxpayers on a state-by-state basis, taking into account such factors as filing status, number of dependents and income. Taxpayers who use the tables can add taxes paid on motor vehicles, boats and other items specified by the Treasury.

This change could also benefit some people in states that do impose state income taxes. "It's conceivable that people who buy a car in a location with a high sales tax and moderate state income tax would do better by forgoing their normal income-tax deduction," says Mark Luscombe, principal tax analyst at CCH Inc., a provider of tax and other business information.

The new rule, however, applies only to people who itemize their deductions. It doesn't apply to those who claim the "standard" deduction, a flat amount based on filing status. Nearly two-thirds of all taxpayers take the standard deduction.

Because of this change, more people who traditionally have taken the standard deduction should now consider itemizing. But it may have little, or no, value for people facing the clutches of the alternative minimum tax, or AMT. As with the deduction for state and local income taxes, the deduction for state and local sales taxes won't be allowed in calculating your AMT.

Charitable Donations. Under current law, donors generally can deduct fair market value for donating items such as cars, boats and planes. But under the new legislation, if the donated item is sold by the charity, the donor's deduction generally will be limited to the gross proceeds from that sale. Taxpayers also will have to get a "contemporaneous" written acknowledgment from the charity. The new provision, effective for donations made after the end of the year, applies when the claimed value exceeds $500.

The change comes in response to concerns that many donors were deducting amounts far above what cars later were being sold for by charities or middlemen.

Court Awards. The legislation will help many people who win court awards, or settlements, in cases involving such issues as race, age or sex discrimination. Congress agreed to create a special deduction for attorneys' fees and court costs in connection with those cases.

This will be what is known as an above-the-line deduction, which will appear on federal income-tax returns above the line for adjusted gross income. That means taxpayers can claim it whether or not they itemize. This change will be effective for fees and costs paid after the date of enactment relating to any judgment or settlement that occurs after that date.

The change comes in response to tax-law oddities that have forced many people who won court awards or settlements to pay taxes on large amounts of money they didn't get to pocket.

The Supreme Court is scheduled to hear two cases on the subject this year. Federal appeals courts have handed down differing decisions.

Other Items. The new legislation authorizes the IRS to hire private-sector debt-collection companies to locate and contact taxpayers who owe money and to arrange payment of those taxes. Separately, another provision is designed to shut down what Treasury Department officials have called an "abusive" scheme involving the U.S. Virgin Islands.