You likely have heard in the news or read about the new tax legislation working its way through Congress.
The Tax Relief for American Families and Workers Act of 2024 (HR 7024), passed in the House on January 31st. It is now waiting on revisions and/or vote in the Senate. If passed in the Senate, the current version of the bill will change some individual and business tax benefits that apply to tax year 2023 for which the IRS began accepting returns on January 29.’
The current bill provides increases in the child tax credit, delays the requirement to deduct research and experimentation expenditures over a five-year period, extends 100% bonus depreciation through 2025, and increases the Code Sec. 179 deduction limitation, among other business-friendly provisions.
The bill has $77.5 billion in added costs that would be partially offset by $77.1 billion in savings from barring any additional claims for the Employee Retention Credit (ERC) as of Jan. 31, 2024; the deadline under current law is April 15, 2025. It also increases penalties on erroneous or fraudulent ERC claims.
What happens next?
The bill is now in the Senate where it faces an uphill battle and will likely have revisions before proceeding to vote.
Due to the large number of provisions that are retroactively applicable to the 2023 tax year, and in some cases even earlier, the original hope was to get the bill passed before the start of the filing season. Since that deadline has passed, the goal would still be to get the bill passed as soon as possible to minimize the administrative burdens on the IRS.
There is no current date set for vote but as the Senate is on a two-week recess, the earliest will likely be March 2024.
What should I do about filing taxes?
Individuals
For individual return filers without Schedule C business or Schedule E rental real estate income, the IRS is encouraging you not to wait on Congress to act and go ahead and file when ready. The bill contains language that instructs the Treasury to recalculate the child tax credits with the information provided by the taxpayer and to automatically issue refunds as applicable. Individual taxpayers will not need to amend their returns to claim any additional child tax credits, if the legislation passes. Please submit your personal tax filing information to W&D as soon as it is available.
Businesses
Because the pending business provisions may reduce 2023 tax liability, W&D is closely following how the bill fares in the Senate. While we are actively preparing business returns due March 15thand April 15th, we are not submitting any filings to the IRS yet. We hope to get some indication as to whether or not this bill remains viable soon. Please proceed as usual with timely providing information for your business and partnership tax filings.
What’s in the pending legislation?
Child tax credit
For the Sec. 24 CTC, the bill increases the maximum refundable amount per child to $1,800 in tax year 2023, up from the current $1,600 per child. The amount increases to $1,900 in tax year 2024 and $2,000 in tax year 2025 and includes inflation adjustments for those two years. The bill would also change how the CTC is calculated. Under current law, taxpayers compute the amount by multiplying their earned income (in excess of $2,500) by 15%. The bill calls for the same percentage but allows taxpayers to multiply that amount by the number of children. This change would be effective for tax years 2023, 2024, and 2025.
In tax years 2024 and 2025, taxpayers would be able to choose to use their earned income from the prior tax year to calculate their maximum child credit if that income was higher in the prior year.
This is a partial restoration of the CTC expansion that was available during the pandemic and then expired. That expansion was credited with significantly cutting child poverty.
Tax breaks for businesses
R&E costs: The bill would amend Sec. 174 to delay when taxpayers must begin deducting their domestic R&E costs over a five-year period to tax years beginning after Dec. 31, 2025, from the current Dec. 31, 2021. That means taxpayers could deduct currently domestic R&E costs that are paid or incurred in tax years beginning after Dec. 31, 2021, and before Jan. 1, 2026.
Business interest limitation: Before 2022, the computation of adjusted taxable income (ATI) for purposes of the business interest deduction limitation was made without regard to any deduction for allowable depreciation, amortization, or depletion. The bill would amend Sec. 163 to extend that treatment through 2025.
Bonus depreciation: The bill would extend Sec. 168 100% bonus depreciation for qualified property placed in service after Dec. 31, 2022, and before Jan. 1, 2026 (Jan. 1, 2027, for longer production period property and certain aircraft) and for specified plants planted or grafted after Dec. 31, 2022, and before Jan. 1, 2026. Currently, bonus depreciation has started phasing out (by 20% per year) for property placed in service and for specified plants planted or grafted after Dec. 31, 2022 (Dec. 31, 2023, for longer production period property and certain aircraft).
Sec. 179 expensing: The bill would also increase the Sec. 179 limitation amounts. Under the bill, the maximum amount a taxpayer could expense under Sec. 179 would be $1.29 million, reduced by the amount by which the cost of the qualifying property exceeds $3.22 million. Those amounts would be adjusted for inflation after 2024. (They were $1.16 million and $2.89 million, respectively, in 2023.)
Other provisions: Other areas covered by the bill include low-income housing, relief in specific communities hurt by disasters; an increase in the threshold for information reporting on Forms 1099-NEC, Nonemployee Compensation, and 1099-MISC, Miscellaneous Information; and the end of double taxation between the United States and Taiwan if Taiwan reciprocates with a similar change.
SOURCE: Wolters Kluwer
Questions?
Please contact your Warady & Davis LLP advisor(s) with your questions at 847-267-9600; info@waradydavis.com.
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