Publication 535: Business Expenses; Introductory Material

This is archived information that pertains only to the 2004 Tax Year. If you
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Table of Contents

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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What's New for 2004

The following items highlight some changes in the tax law for 2004.

Fringe benefits. Your deduction for the cost of certain entertainment, amusement, or recreation fringe benefits paid or incurred after October 22, 2004, for certain officers, directors, and more-than-10% shareholders is limited to the amount actually included as compensation subject to employment taxes. See chapter 2.

Compensation limit. For 2004, the maximum compensation used for figuring contributions and benefits for a retirement plan is $205,000. See chapter 3.

Elective deferrals. The limit on elective deferrals is $13,000 for tax years beginning in 2004. 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 catch-up contribution limit for 2004 is $3,000 for participants who are age 50 or over at the end of the calendar year. See chapter 3.

SIMPLE plan salary reduction contributions. The limit on salary reduction contributions to a SIMPLE plan increased to $9,000 for 2004. The catch-up contribution limit for 2004 is $1,500 for participants who are age 50 or over at the end of the calendar year. See chapter 3.

Reforestation costs. You can elect to deduct a limited amount of reforestation costs paid or incurred after October 22, 2004. The remaining costs can be amortized over an 84-month period. See chapter 8 and chapter 9.

Start-up and organizational costs. You can elect to deduct up to $5,000 of business start-up and organizational costs paid or incurred after October 22, 2004. The remaining costs can be amortized ratably over a 180-month period. See chapter 8 and chapter 9.

Sports franchise acquisitions. Intangible assets acquired after October 22, 2004, in connection with acquiring a professional sports franchise (including player contracts) can be amortized ratably over a 15-year period. See chapter 9.

Safe harbor for creative property costs. You may be able to amortize certain creative property costs ratably over a 15-year period. See chapter 9.

Elective safe harbor for owners of oil and gas property. For tax years ending after March 7, 2004, owners of oil and gas property may use an elective safe harbor in determining the property's recoverable reserves for purposes of computing cost depletion. See chapter 10.

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.

What's New for 2005

Compensation limit. The maximum compensation used for figuring contributions and benefits for a retirement plan increases to $210,000 in 2005.

Meal expense deduction subject to “hours of service” limits. In 2005, 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.

Reminders

Qualified environmental cleanup (remediation) costs. The deduction for qualified environmental cleanup (remediation) costs include costs you pay or incur before 2006. 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 2006. For more information on marginal production, see section 613A(c) of the Internal Revenue Code.

Maximum clean-fuel vehicle deduction. 100% of the clean-fuel vehicle deduction and qualified electric vehicle credit are allowed for qualified property placed in service in 2004 and 2005. 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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