October 22, 2004 -- The American Jobs Creation Act of 2004 wills an impact on 2004 year-end tax planning.  In particular, the act has enacted several important depreciation tax changes that may influence you to take one more look at your tax situation and implement strategies that will minimize your 2004 taxes. The following is a brief overview of some tax saving ideas to consider on the subject of depreciation.

First, the new tax legislation did not extend 50% bonus depreciation. Qualifying property placed in service in 2004 is eligible for bonus depreciation of 50%. That’s an immediate deduction equal to 50% of the cost, which is in addition to regular depreciation on the remaining cost. To qualify, property must be new, placed in service anytime during the tax year, and either:  tangible personal property with a recovery period of 20 years or less, depreciable computer software, qualified leasehold improvements, or water utility property. But this opportunity for additional depreciation ends in 2004, as the benefit was not extended by the recent tax legislation. Thus, assets bought and placed in service after 2004 generally will not qualify. Therefore, if you’re planning to purchase business assets in the near future, you should consider purchasing those business assets before year-end, otherwise a significant tax savings will be lost.

Second, the new tax legislation has moved to close the tax well-publicized tax benefit sport utility vehicle expensing. Up until quite recently, small business owners and self-employed business owners were permitted to expense as much as $102,000 on the purchase of heavy (over 6,000 pound) vehicles. Property eligible can be either new or used and can be claimed for property placed in service anytime during the year, including the last day. The recently passed Act of 2004 has narrowed the so-called sport utility vehicle loophole by rolling back the expense deduction to $25,000 for most purchases.  And, unlike many tax changes which take effect at some time in the future, this change took effect immediately upon the president’s signature, to prevent people from rushing out to buy the big sport utility vehicles before the tax break disappeared. The good news, however, is that big sport utility vehicles, unlike passenger automobiles, are eligible for unrestricted first-year depreciation and bonus depreciation, on top of the $25,000 that is allowed to be expensed. Since bonus depreciation will not be available after 2004, the results are less favorable if you wait until next year to purchase the sport utility vehicle thus taking delivery of the vehicle this year should be arranged to maximize the tax depreciation benefit. 

Taking the time now to review your 2004 tax situation gives you a chance to take advantage of numerous year-end tax saving opportunities concerning depreciation. If you would like to discuss the strategies mentioned here or other ideas for reducing your 2004 tax liability, please don’t hesitate to call us at 215-564-1900 .  

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