3 min read

Tax Relief for Businesses and Individuals - Pending Bill

The House Ways and Means Committee voted January 19th to advance a $79 billion tax bill that includes several key individual and business tax breaks. The Tax Relief for American Families and Worker Act of 2024 advanced with a 40-3 vote and could be voted on by the House as early as the week of January 29th.  There are three big tax provisions impacting business and additional items to benefit many tax payers.

The bill includes relief on several business tax provisions included in the Tax Cuts and Jobs Act of 2017 (“TCJA”) that increased tax to offset other tax reductions. Specifically, the bill addresses the deduction for research and experimental (R&E) expenditures, extends 100% bonus depreciation, increases limitations on expensing depreciable assets under Section 179, and extends the allowance for depreciation and amortization in determining the limitation on business interest.

1. Reinstating Research and Experimental Expenditures

Prior to 2023, R&E expenditures were 100% deductible. Starting in 2023, the TCJA required capitalization and amortization of R&E expenditures over 5 years for domestic expenditures and over 15 years for foreign expenditures. The current bill retroactively suspends the capitalization requirement of domestic expenditures until tax years beginning after 2025. Foreign expenditures would remain subject to the capitalization and 15-year amortization requirement.

2. Extending Bonus Depreciation

The TCJA extended 100% bonus depreciation through 2022, after which a phaseout began for 2023-2026. The phaseout reduces bonus depreciation to 80% for 2023, 60% for 2024, 40% for 2025, 20% for 2026, and then eliminates it in 2027. The current bill retroactively extends the 100% deductibility for 2023 through 2025 and maintains the 20% deductibility for 2026 and the complete expiration for 2027.

3. Relief on the Business Interest Expense Limitation

The TCJA also imposed a limitation on the deductibility of business interest expense. Taxpayers subject to the limitation were generally allowed to deduct business interest expense to the extent of 30% of adjusted taxable income (ATI). In determining ATI, taxpayers benefited from a provision that allowed the addback of depreciation and amortization expense. This addback increased the ATI threshold on which the 30% limitation was calculated, thereby providing a larger allowable interest expense deduction. However, under the TCJA, the addback for depreciation and amortization was only in effect for tax years through 2021. The current bill would retroactively extend the benefit of the depreciation and amortization addback for tax years through 2025.

Other items in the bill

The new bill also provides individuals tax relief by increasing the refundable portion of the child tax credit. Under current law, the refundable portion of the credit is limited to $1,400 per qualifying child; the new bill would increase the limitation on the refundable portion to $1,800 in 2023, $1,900 in 2024, and $2,000 for 2025. Additionally, the bill indexes the child tax credit for inflation in 2024 and 2025 and allows taxpayers to use a previous tax year’s income to determine their eligibility for the credit.

Other provisions of the new bill include an increase in the state credit ceiling for low-income housing tax credits, expedited relief from double taxation for Taiwan residents, expanded tax relief for victims of non-federally designated disasters, and an increase in the 2024 reporting threshold for forms 1099-NEC and 1099-MISC from $600 to $1,000.

To offset the cost of the tax relief, the new bill increases the penalties on fraudulent promoters of the Employee Retention Credit (ERC) and promoters that failed to comply with due diligence requirements in aiding, assisting, or advising on the filing of ERC claims. The bill also extends the statute of limitations on ERC claims and moves the deadline to file ERC claims up from April 15, 2025, to January 31, 2024.

This bill, as currently drafted, addresses the “big three” business tax provisions that business leaders have been urging Congress to address – reinstating R&E expensing, extending bonus depreciation, and relief on the business interest expense limitation. The strong bipartisan support in the House Ways and Means Committee in addition to the support by House and Senate leaders may indicate that the bill has a good chance of passing without significant changes. If the bill is signed into law as is, additional guidance will be needed from the IRS on how the retroactive provisions are to be implemented for 2023 returns that have already been filed.

We are here to help with any tax questions on the new tax bill. Please feel free to reach out to us at 301-738-9040.