| Publication 535 |
2003 Tax Year |
Publication 535
Introductory Material
This is archived information that pertains only to the 2003 Tax Year. If you
are looking for information for the current tax year, go to the Tax Prep Help Area.
Introduction
This publication discusses common business expenses and explains what is and is not deductible. The general rules for deducting
business expenses
are discussed in the opening chapter. The chapters that follow cover specific expenses and list other publications and forms
you may need.
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Important Changes
for 2003
The following items highlight some changes in the tax law for 2003.
Elective deferrals. The limit on elective deferrals increases to $12,000 for tax years beginning in 2003 and then increases $1,000 each tax year
thereafter until it
reaches $15,000 in 2006. These new limits will apply for participants in SARSEPs, 401(k) plans (excluding SIMPLE plans), and
deferred compensation
plans of state or local governments and tax-exempt organizations. The $15,000 figure is subject to cost-of-living increases
after 2006.
Catch-up contributions. A plan can permit participants who are age 50 or over at the end of the calendar year to also make catch-up
contributions. The catch-up contribution limit for 2003 is $2,000. This limit increases by $1,000 each year thereafter until
it reaches $5,000 in
2006. The limit is subject to cost-of-living increases after 2006. The catch-up contribution a participant can make for a
year cannot exceed the
lesser of the following amounts.
-
The catch-up contribution limit.
-
The excess of the participant's compensation over the elective deferrals that are not catch-up contributions.
See chapter 3.
SIMPLE plan salary reduction contributions. The limit on salary reduction contributions to a SIMPLE plan increases to $8,000 beginning in 2003 and then increases $1,000
each tax year
thereafter until it reaches $10,000 in 2005. The $10,000 figure is subject to adjustment after 2005 for cost-of-living increases.
Catch-up contributions. A SIMPLE plan can permit participants who are age 50 or over at the end of the calendar year to make catch-up
contributions. The catch-up contribution limit for 2003 is $1,000. This limit increases by $500 each year thereafter until
it reaches $2,500 in 2006.
The limit is subject to cost-of-living increases after 2006. The catch-up contributions a participant can make for a year
cannot exceed the lesser of
the following amounts.
-
The catch-up contribution limit.
-
The excess of the participant's compensation over the salary reduction contributions that are not catch-up contributions.
See chapter 3.
Health insurance deduction for the self-employed. Beginning in 2003, the self-employed health insurance deduction percentage increases to 100%. See chapter 7.
Standard mileage rate. The standard mileage rate for the cost of operating your car, van, pickup, or panel truck in 2003 is 36 cents a mile for all
business miles. See
chapter 13.
Important Changes
for 2004
Standard mileage rate. The standard mileage rate for the cost of operating your car, van, pickup, or panel truck in 2004 is 37.5 cents a mile for
all business miles. See
chapter 13.
Meal expense deduction subject to “hours of service” limits. In 2004, this deduction increases to 70% of the reimbursed meals your employees consume while they are subject to the Department
of
Transportation's “hours of service” limits. See chapter 13.
Important Reminders
Qualified environmental cleanup (remediation) costs. The deduction for qualified environmental cleanup (remediation) costs has been extended to include costs you pay or incur
before 2004. After
December 31, 2003, these costs must be capitalized. See chapter 8.
Marginal production of oil and gas. The suspension of the taxable income limit on percentage depletion from the marginal production of oil and natural gas has
been extended to tax
years beginning before 2004. For more information on marginal production, see section 613A(c) of the Internal Revenue Code.
Alternative minimum tax. Individuals, corporations, estates, and trusts who claim depletion deductions may be liable for alternative minimum tax.
For more information on alternative minimum tax, see the following sources.
See chapter 10.
Maximum clean-fuel vehicle deduction. The maximum clean-fuel vehicle deduction and qualified electric vehicle credit were scheduled to be 25% lower for 2002 and
both were scheduled to
be phased out completely by 2005. The full deduction and credit are now allowed for qualified property placed in service in
2002 and 2003. The
phaseout of the deduction and the credit will begin in 2004, and no deduction or credit will be allowed for property placed
in service after 2006. See
chapter 12.
Photographs of missing children. The Internal Revenue Service is a proud partner with the National Center for Missing and Exploited Children. Photographs of
missing children
selected by the Center may appear in this publication on pages that would otherwise be blank. You can help bring these children
home by looking at the
photographs and calling 1–800–THE–LOST (1–800–843–5678) if you recognize a child.
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