The president has signed law H.R. 4520, legislation that will phase out various American tax subsidies ruled illegal under international trade rules. According to a statement by the White House Press Secretary on www.whitehouse.gov , “H.R. 4520, the American Jobs Creation Act of 2004, which repeals the extraterritorial income exclusion in current tax law, provides domestic manufacturing and other business tax relief, including energy-related tax credits; allows for itemized deduction of State and local sales taxes; provides for reform of tobacco subsidies; includes international tax reform and simplification provisions; and includes various revenue-raising provisions.”
So, what does this mean for you? This new tax relief will benefit taxpayers engaged in “United States-based production.” According to the ANLA Update, the principal relief is a new deduction that constitutes slightly more than half ($76 billion) of the bill’s total tax relief ($136 billion).
Some aspects of the law that apply to your business include reducing taxable income and your tax process. The provision achieves the tax cut by reducing taxable income with a new deduction, not by lowering the applicable tax rate; therefore, taxpayers receive the benefit regardless of rate bracket. The deduction is available to taxpayers regardless of how the business is organized for tax purposes. In the case of an individual, the deduction is applied to the adjusted gross income.
The deduction will increase slowly over the next four years. For taxable years beginning in 2005 and 2006, the deduction is 3 percent of income; for taxable years beginning in 2007, 2008 and 2009, the deduction is 6 percent of income; for taxable years beginning after 2009, the deduction is 9 percent of such income.