Andrew Abeyta, CPA
Tax Manager
Recently, the Senate approved (via an overwhelmingly favorable vote of 40-3) the “Tax Relief for American Families & Workers Act of 2024” which is now with congress for a tentatively scheduled end of January vote. Below is an outline of the Business Tax Provisions that are set to change as a result of this bill (pending any additional adjustments by congress). Please note that many of these potential tax provisions will expire on December 31, 2025.
| CURRENT LAW | PROPOSED CHANGE VIA H.R. 7024 | |
| BUSINESS INTEREST LIMITATION
IRC 163(j) |
Large businesses are subject to interest limitations currently calculated as Taxable Income + Interest Expenses, multiplied by 30%. Any interest in excess of this amount is disallowed and carried to the next tax year for taxpayers with average gross receipts that exceed $27MM (adjusted for inflation). | Congress seeks to add Depreciation & Amortization to the limitation calculation (Taxable Income + Interest Expenses + Depreciation + Amortization multiplied by 30%). Increasing the base will result in a higher amount of allowable interest deduction.
Changes occurring to calendar years 2022 and 2023 may require an election statement to accompany the tax return to “Apply the Extension Retroactively”. These provisions will sunset on 12/31/25. |
| RESEARCH & EXPERIMENTAL EXPENDITURES
IRC 174 |
Taxpayers must capitalize and amortize their R&E costs ratably over 5-years or 15-years (domestic or foreign research respectively), beginning with the midpoint of the taxable year in which such expenditures are paid or incurred. | Congress seeks to “delay” the capitalization of DOMESTIC R&E expenses to taxable years beginning after December 31, 2025, allowing taxpayers to claim an immediate deduction. No such benefit is allowed for foreign R&E expenses.
For taxpayers who capitalized expenses in 2022 no amendment will be needed; the capitalized expenses will be allowed on a modified cut off basis to deduct in tax years 2023 and 2024. |
| BONUS DEPRECIATION
IRC 168(k) |
Taxpayers who place property in service after 12/31/22 and before 1/1/24 are eligible to take 80% bonus depreciation on qualified property. | Congress seeks to amend to “delay” the gradual reduction in bonus depreciation to 2026 (2026 having a 20% bonus depreciation rate, and 2027 being the first year of a fully sunset bonus depreciation). Until then, taxpayers can deduct 100% bonus depreciation on qualified property. |
| SEC 179 EXPENSING | Taxpayers can take advantage of expensing up to $1.22M of qualified property for tax year 2024 with phase outs starting when total qualified property acquisitions are more than $3.05M. | Congress seeks to amend IRC 179 to increase the eligible maximum amount from $1.22M to $1.29M. The phaseout will also increase from $3.05M to $3.22M. These amounts will be adjusted for inflation in future tax years (subsequent to 2024). |
| CHILD TAX CREDIT | Under the current law, the Child Tax Credit (CTC) is $2,000 for qualified taxpayers, with a potential sunsetting to the pre-TCJA credit of $1,000 effective 1/1/2026. | Congress seeks to index the child tax credit for inflation for tax years 2024 and 2025. For these years, taxpayers can elect to use their prior year earned income in the calculation of their CTC. The refundable portion of the CTC will increase to $1,800, from $1,600 in 2023. This amount will increase to $1,900 and $2,000 for 2024 and 2025 respectively. |
The bill also includes a provision to terminate early the employee retention tax credit (ERTC) program; Effective January 31, 2024 additional claims will no longer be accepted and there will be increased penalties for preparers involved in fraudulent claims. The bill will extend the ERTC IRS assessment statute to six years.
Please note that although Congress plans to move swiftly to pass the bill into law in time for the 2023 tax filing season there are many hurdles yet to overcome as well as the potential for changes to the current draft.
To learn how the above tax provisions will affect your personal situation, please contact your WFY tax representative or contact us here. You can sign-up for our newsletter here to receive more updates.
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