By Kevin Reilly, J.D, CPA, CGMA and Charles Dean Smith, Jr., CPA

Since its passage by the House of Representatives on January 31, 2024, the popular press has written much about this bipartisan Bill, H.R. 7024.  It provides business tax breaks that Republicans support, and the expanded child tax credit required by Democrats.

But the Senate does not have much time remaining to act on this proposed legislation.  As they return from recess on February 26, 2024, the Senate will still need to deal with another continuing resolution and the impeachment trial of Secretary Mayorkas.  Several Senators have expressed concerns over the Bill and expect to offer amendments, such as an unlimited deduction for state and local taxes.  If the Senate passes anything that is not identical to the current version, the Bill would need to be taken up again in the House.  And with the elections coming up in November, this Bill may just run out of time.

Provisions in the Tax Relief for American Families and Workers Act of 2024

We do not know what will be in the final Bill or if we will even have one.  But what is in the Bill that has many excited?  Some of the provisions are covered below, a more detailed analysis will be provided if the Bill progresses through the Senate.

Child Tax Credit:  Increase the refundable portion of the credit per qualifying child to $1,800 for 2023;  $1,900 for 2024; and $2,000 for 2025.  The overall credit would also be adjusted in 2024 and 2025.  The Bill requires the IRS to redetermine the credit for anyone who has filed their 2023 income tax return, and refund their overpayment without requiring an amended return.

Deduction for Domestic Research and Experimental (R&E) Expenditures:  Delay the requirement to amortize domestic R&E expenditures over five years until 2026.  This would include expenditures incurred in 2022 through 2025.  Most expenses could be deducted immediately.

Business Interest Expense Limitation:  Revert to the old rules in determining adjusted taxable income to compute the interest expense limitation for the years 2022 through 2025.

100% Bonus Depreciation Extension:   Extend 100% bonus depreciation retroactively for qualifying property placed in service in 2023 through 2025.  Additional rules would be applied to specific assets.

Increase in Limitations on Expensing Depreciable Business Assets:  Permanently increase the Section 179 limitation for expensing depreciable business assets to $1.29 million and increase the property cost limitation to $3.22 million.  Both numbers would be adjusted for inflation after 2024.

Other issues: Provide tax relief for Taiwanese companies, modify federally declared disaster zone rules, adjust affordable housing credits, and increase the reporting threshold for certain information returns such as 1099.

Should You Consider Filing an Extension for your 2023 Individual or Business Income Tax Return?

Considering the significant uncertainty surrounding the final passage of a tax Bill before the upcoming 2023 tax return filing deadlines, many clients have already contacted us asking if they should delay their tax filing or consider filing an extension this year.

Most individuals who do not own businesses should consider filing 2023 individual tax returns as normal.  The tax law changes in the proposed Bill will have a limited tax effect on those returns.

For those taxpayers who file business tax returns, consider your potential 2023 exposure to the R&E and interest expense limitation changes, along with the changes to the bonus depreciation and Section 179 calculations.  You should consider filing your 2023 business tax return as normal if your business will:

  • not be subject to these R&E and interest expense limitations, and
  • only use a lower Section 179 expense amount on your equipment purchases with no additional bonus depreciation expense calculation required.

We suggest discussing and evaluating your potential tax exposure with your tax advisor to determine your best tax filing option.  Some business owners will consider filing extensions that could allow for any retroactive tax changes to be included in 2023 tax returns.   PBMares will continue to closely monitor the proposed tax legislation and will issue an updated tax alert if passage occurs prior to the 2023 tax return filing deadlines.