The House Ways and Means Committee recently approved The Tax Relief for American Families and Workers Act of 2024 containing several individual and business tax provisions which, if signed into law, would potentially impact the upcoming tax season.
It is important to note that the legislation is currently making its way through Congress and it is not yet law, nor have its provisions been finalized. However, we want to note the major components of the Act as they currently stand so you can be prepared if and when it is signed into law.
Research & Development Expensing
For tax years beginning after December 31, 2021, the Tax Cuts and Jobs Act of 2017 required amortization and capitalization of domestic research and development expenses over a five-year period (15 years for R&D expenses incurred outside the U.S.). The 2024 Act would overturn that requirement and temporarily restore immediate expensing of R&D expenses paid or incurred between December 31, 2021 and January 1, 2026.
The Act would revive 100 percent bonus depreciation to allow full and immediate expensing for qualified property placed into service after December 31, 2022 and before January 1, 2026. This could provide for additional deductions for 2023.
Section 179 Deduction
The deduction limit under Section 179 would increase for tax years starting after 2023, allowing businesses to expense up to $1.29 million and phase out thresholds starting at $3.22 million, indexed for inflation thereafter. Under current law, the maximum amount a taxpayer may expense is $1 million of the cost of qualifying property placed in service for the taxable year.
Business Interest Limitation
The Act would extend the allowance for depreciation, amortization, or depletion in determining the limitation on business interest deductibility to taxable years beginning after December 31, 2023 and before January 1, 2026. This would reduce the limitation and provide additional tax deductions.
Employee Retention Credit Claims Submission Deadline Would Move Up
The cost of the tax break provisions in the $78 billion Act would be offset by moving up the deadline for filing new Employee Retention Credit (ERC) claims. The current deadline to submit claims is April 15, 2024 for claims related to 2020 and April 14, 2025 for claims related to 2021. If passed, the Act would change the deadline for submitting all ERC claims to January 31, 2024. It would also increase some of the penalties for fraudulent ERC claims, and increase the preparer penalty for certain promoters.
Child Tax Credit
The Act would expand access to the Child Tax Credit with a phased increase to the refundable portion of the credit for 2023, 2024, and 2025. It would eliminate a penalty for larger families so the credit phase-in applies more fairly to families with more than one child. It would also include a one-year income lookback provision which would allow taxpayers to use either current or prior year income to calculate the credit for 2024 or 2025.
Some additional provisions of the proposed Act include:
- Expanding the small business expensing cap to $1.29 million from the current $1.0 million and adjusting the reporting threshold for businesses that use subcontract labor from $600 to $1,000
- Removing the current double taxation for business and employees with a footprint in both the U.S. and Taiwan
- Providing disaster relief for those impacted by recent floods, wildfires, hurricanes, and the rail disaster in Ohio
- Enhancing the low income housing tax credit
- Increasing the threshold for information reporting on Forms 1099-MISC and 1099-NEC
As stated earlier, the Act still needs to make its way through Congress. We will continue to keep you updated on its progress, but if you have any questions in the meantime, please contact your Kreischer Miller relationship professional or any member of our Tax Strategies team.
Information contained in this alert should not be construed as the rendering of specific accounting, tax, or other advice. Material may become outdated and anyone using this should research and update to ensure accuracy. In no event will the publisher be liable for any damages, direct, indirect, or consequential, claimed to result from use of the material contained in this alert. Readers are encouraged to consult with their advisors before making any decisions.