Businesses and individuals alike need to keep a close eye on current pending tax legislation that has bipartisan and bicameral support on Capitol Hill. This much needed legislation is several years in the making. Since the Tax Cuts and Jobs Act (TCJA) was signed into law on December 22, 2017 (primarily effective for 2018), certain expiring provisions have been on the radar of businesses and legislators. The initial intent was that these nuances would be fixed before they went into effect (most did for the 2022 tax year). These include: 

  1. Limitation on Domestic Section 174 expensing (Amortized over 5 years rather than immediate expensing) 
  2. Phase down of 100% 'bonus' depreciation under Section 168(k) (Phasing down from 100% in 2022 to 80% in 2023, 60% in 2024 and 40% in 2025) 
  3. Business Interest Deduction Limitation under Section 163(j) (with certain exceptions, business interest can be limited to 30% of taxable income before interest expense) 
  4. The enhanced Child Tax Credit -This was part of the American Rescue Plan Act and expired at the end of 2021. This enhanced credit temporarily increased the amount of the Child Tax Credit, made it fully refundable and allowed for periodic advance payments to eligible families during the second half of 2021. After 2021, the Child Tax Credit reverted to its previous structure. 

The bill’s support comes from its nature, helping businesses and families in the United States. The Act introduces several key provisions aimed at providing tax relief from these business tax law changes. The Act also seeks to enhance the child tax credit for families with low income, increasing its amount by an inflation adjustment and increasing its availability. This provision is expected to benefit the families of 15 million low-income children, potentially lifting 400,000 children out of poverty. The Act also makes improvements to the Low-Income Housing Tax Credit and will potentially build more than 200,000 new affordable housing units. 

The Act proposes to revive expired tax breaks for businesses, such as 100% 'bonus' depreciation under Section 168(k) through the end of 2025, on a retroactive, seamless basis. This would potentially allow businesses to expense immediately the full cost of qualified property placed in service for tax purposes rather than depreciating it over its useful life. It also aims to fix the Section 174 expensing for U.S.-based R&D investments and the taxable income limited business interest limitation under Section 163(j). This is very important in the rising interest rate environment most businesses are facing today. 

It will also be interesting to see if these are passed retroactively to 2022 or just apply to the 2023 tax filing season. Hopefully, legislators can fix them retroactively to 2022, which will give taxpayers much needed relief (especially in the 174-addback arena), but this will potentially require amendments to tax returns. IRS guidance will need to be updated to address how to amend for these issues. 

On a side note, the Act will likely also end the ERC covid era program that has seen unprecedented abuse and fraud. The framework proposes to end the ERC program as of January 31, 2024, and increase penalties for ERC promoters who understate tax liabilities. It also extends the statute of limitations for assessment of ERC claims to six years. 

It’s important to note that without any further legislation, most of the TCJA sunsets at the end of 2025. One of the only permanent changes the TCJA made was cutting the corporate tax rate (for C-Corps) to 21%. 

The American Families and Workers Act of 2024 is seen as a comprehensive package to support working families, boost growth and competitiveness for U.S. companies and strengthen communities and businesses. The initial intent, as we understand it, is to pass something before the IRS officially opens tax filing season for 2023 on January 29, 2024, but an extension of your return may be required to see how this plays out.  

Stay tuned. We will keep you posted! Check back here, in our Industry News, for updates.