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The American Jobs Creation Act of 2004

In October 2004, President Bush signed into law the American Jobs Creation Act of 2004.  This tax law creates broad-based tax relief for a wide variety of businesses.  Highlights of how the law might affect your business include the following:

• New tax deduction for U.S. production activities.  Businesses can now deduct a percentage of their net income from U.S.-qualified production activities.  The deduction is three percent for 2005 and 2006, six percent for 2007-2009, and nine percent after 2009.
• Expensing tax breaks extended for two more years.  A business that buys machinery and equipment generally deducts its cost over a number of years via depreciation.  The new tax law allows businesses to immediately deduct a certain amount of the cost of tangible depreciable personal property purchased and placed in service during the year.  The maximum annual expensing amount is $100,000.
• New fifteen-year write-off for qualifying leasehold improvements and qualifying restaurant property.  Property placed in service after October 22, 2004, and before January 1, 2006, is allowed a fifteen-year straight-line depreciation (versus the thirty-nine years under the prior law) for qualifying leasehold improvements and qualified restaurant property.  Generally, qualifying leasehold improvements are interior improvements made under a lease for commercial property.  These improvements must be made more than three years after the building was placed in service.  Expansions or improvements made by a building owner and claimed by a subsequent owner and certain structural improvements typically do not qualify.  Qualified restaurant property is any improvement made to a building that uses more than fifty percent of its square footage for preparation and consumption of prepared meals.  The improvements must occur more than three years after the date the building was placed in service.
• Liberalized S corporation rules.  The new law makes it easier for businesses to qualify for S corporation status.  The maximum number of shareholders has been increased from 75 to 100, and certain family members are counted as one shareholder for purposes of determining the maximum number of shareholders.
• Limited expensing write-offs for heavy SUVs.  Heavy SUVs are vehicles with a gross vehicle weight rating of more than 6,000 pounds.  For this type of SUV, placed in service after the law’s enactment date, only $25,000 can be deducted.

This article describes only a few highlights of the most important changes in the new tax law.  Please contact our office if you would like to learn more about this important tax law.