The House Ways and Means Committee approved The Tax Relief for American Families and Workers Act of 2024, symbolizing a legislative victory for taxpayers, especially small business owners and professionals. This proposed legislation deserves a detailed look due to its retroactive provisions and potential to affect the upcoming tax season. The proposed bill will now advance through Congress and will ultimately need approval by the Senate and President Biden.
For Businesses: Incentives to Sustain and Grow
Several key provisions have been introduced to support business growth and adaptability:
Research and Experimentation Expenses:
Under current law, domestic research and experimental expenditures paid or incurred in tax years beginning after December 31, 2021, are required to be amortized over a five-year period. In tax years prior to 2021, these expenses could be immediately deducted in the year in which they were paid or incurred. Costs attributable to research or experiments outside the U.S. must be deducted over a 15-year period. The proposed law would delay to tax years beginning after December 31, 2025 the application of this rule with regard to research and experimental costs attributable to domestic activities. There would be no change for activities outside the U.S. The bill provides transitional rules applicable to interactions with research credits, as well as making accounting changes.
The Act extends the 100% bonus depreciation for qualifying property placed in after December 31, 2022, and before January 1, 2026. This extension allows businesses to deduct the full cost of eligible property in the year of service, promoting investment in new assets. The provision retains 20-percent bonus depreciation for property placed in service after December 31, 2025, and before January 1, 2027.
Section 179 Deduction:
The deduction limit under Section 179 is increased 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:
For tax years starting after 2023 and before 2026, businesses can compute adjusted taxable income (ATI) for interest limitation with reinstated depreciation, amortization, and depletion deductions, enhancing cash flow.
Combating Fraud and Ensuring Compliance:
The Act introduces stringent measures to curb fraudulent claims, specifically targeting the misuse of the Employee Retention Tax Credit (ERTC). If signed into law, the proposed tax package would shorten the deadline to file all ERC claims to January 31, 2024.
For Families: A More Generous Child Tax Credit
The Child Tax Credit (CTC) sees a notable expansion for individuals. This credit calculates the refundable portion per child once the taxpayer’s earned income exceeds $2,500 by 15%. For tax years 2023 through 2025, the credit increases to $1,800, $1,900, and $2,000, respectively, offering substantial savings for families. Additionally, for the tax years 2024 and 2025, taxpayers can calculate their CTC based on the previous year’s earned income, providing flexibility in fluctuating income.
International Relations: U.S. and Taiwan
In a significant move, the bill extends tax treaty-like benefits to Taiwan to avoid double taxation, which may impact businesses with operations or interests in Taiwan.
Disaster Relief: Continued Assistance
Disaster relief provisions from the Taxpayer Certainty and Disaster Tax Relief Act of 2020 are extended. This includes benefits for those affected by federally declared disasters between January 1, 2020, and 60 days post-enactment of the new bill.
Simplifying Tax Reporting:
The reporting threshold for Form 1099-NEC and 1099-MISC increases from $600 to $1,000 for payments made after December 31, 2023, easing the administrative load for small businesses.
Promoting Affordable Housing:
The bill boosts the 9% low-income housing tax credit ceiling by 12.5% for calendar years 2023 through 2025 and reduces the bond financing threshold to 30% for projects financed by bonds issued before 2026.
This Act presents a mosaic of opportunities and considerations. Small business owners and professionals must promptly assess how these changes impact their operations and tax strategies. As the provisions have retroactive effects, it’s crucial to consult with tax professionals to maximize benefits and navigate the complexities of the new law.