Late last night, the House overwhelmingly approved H.R. 7024 entitled the Tax Relief for American Families and Workers Act of 2024 with a vote of 357 to 70. This is great news to small businesses as a number of the bill’s provisions address many issues business owners and professional associations have been requesting for the past few years.
Below are the key issues addressed by the bill for small business:
- Section 174 Expensing – the bill restores the deduction of US based R&D expenditures through December 31, 2025. Previously, any qualified research expenditures (QRE) paid or incurred after December 31, 2021 had to be capitalized over 5 years (15 years if overseas). With the passage of this bill, taxpayers will be allowed to deduct those expenses in the year they are paid or incurred. Taxpayers that previously filed tax returns with those capitalized costs may be given a choice to amend those tax returns or file a change in accounting method on their current tax return to true up the effect of that change via a section 481(a) adjustment. Under this version of the bill, only US based expenses qualify for the deduction.
- Section 163(j) Interest Deduction – The bill also restores the inclusion of depreciation and amortization in the computation of the interest deduction limitation calculation. This change will increase the amount of allowable business interest deduction through December 31, 2025.
- Section 168(k) Bonus Depreciation – Bonus depreciation would be restored to 100% through December 31, 2025 under H.R. 7024. Bonus depreciation was previously being phased out starting with tax year 2023 at 80%.
- Section 179 Small Business Expensing – H.R. 7024 also provides a temporary increase in Section 179 small business expensing.
- Employee Retention Tax Credit (ERTC) – the deadline for amending the returns for ERTC has been moved up to January 31, 2024. That deadline was previously April 15, 2024 for 2020 returns and April 15, 2025 for 2021 returns. The statute of limitation for auditing those returns would be extended and the penalty for aiding and abating understated liabilities increases. This is the provision to offset the revenue loss from the incentives listed above.
Other provisions covered by the bill are:
- Child Tax Credit (CTC) – Starting in 2024, the child tax credit would be indexed to $2,000 and the refundable maximum starting in 2025. 2023 would also see a refundable maximum of $1,800 to be increased to $1,900 in 2024 and $2,000 in 2025. The provision is due to sunset after 2025.
- Disaster impacted communities tax relief.
- Tax exempt financing provisions and low-income housing tax credit
- Relief for reporting form 1099-NEC and 1099-MISC information for independent contractors and subcontractors.
- US-Taiwan double taxation relief.
So what happens next? While this is great news for the business community, the bill still needs to be approved by the Senate and signed into law by the President. Given the overwhelming bipartisan support it received in the House, the bill has a good likelihood of passing in the Senate but that remains to be seen. The Senate is in session through February 12th before going on a two-week recess. The bill may go up for a vote between now and then. However, there is also a strong possibility that it doesn’t clear the Senate until early March as an amendment to an appropriations agreement.
Grassi will continue to monitor the progress of the bill and will keep you updated.
