The November midterm election resulted in a divided Congress going into 2023. This creates challenges for Congress to pass any large tax legislation over the next couple of years. Given this reality, businesses and their owners are likely to plan for taxes more easily assuming the current tax law will likely remain unchanged. However, consideration should be given to potential year-end tax related legislation, knowing the current administration has several weeks to accomplish some of its agenda during the lame duck session.
Retirement Plan Tax Legislation – SECURE Act 2.0
Earlier this year, we wrote an article laying out the landscape for an expansion of the 2019 SECURE Act. This Act greatly increased retirement plan access and related tax benefits for businesses, employees, and owners.
The SECURE Act. 2.0 looks to further that progress. Given that the legislation has been mired in Congressional negotiation for well over a year, the lame duck Congress may increase its efforts to get the legislation passed as we head into the end of the year. Taxpayers should be mindful of this Act and tax plan accordingly if the Act is passed.
Omnibus Spending Package
Spending package debates have been a major topic of discussion within the current Congress. The package, which is overdue, will provide government funding for the overdue fiscal 2023. This measure could create an opportunity for Congress to insert certain business tax-related provisions into the year-end package.
Notable tax related provisions:
- The current requirement to capitalize and amortize research and experimental costs over five years
- The requirement to use earnings before interest and taxes as opposed to earnings before interest, taxes, depreciation, and amortization when calculating the interest expense deduction limitation. This could limit many businesses from currently deducting interest expense
- Looking to extend bonus depreciation, which is set to phase down from 100 percent full expensing for tax year 2022 to zero full expensing in 2027 and beyond
Congress may be inclined to address these items within the current year to allow for the 118th Congress to have a clearer agenda heading into 2023.
As we approach December 31, it will be vital to follow and understand how the current administration addresses year-end tax policy.
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