Earlier this month, the House Ways and Means Committee approved bipartisan legislation that provides tax relief to both American businesses and families. The Tax Relief for American Families and Workers Act of 2024 (Act) calls for temporary extensions and changes to tax incentives impacting individual, family, and business taxpayers. It includes a temporary extension to the federal Child Care Credit, research and development (R&D) expense deductions, restores 100 percent bonus depreciation, increases the maximum deduction for Section 179D expenses, and more. The legislation will be paid for by the recovery of fraudulent payments of COVID-19-era tax credits. Since it still needs to work its way through Congress it is likely some changes will be made. However, it does provide important insight into the potential tax changes on tap for the coming months. To help clients, prospects, and others, WhippleWood CPAs has provided a summary of the key details below.
- R&D Expense Deduction – Under current regulations, eligible R&D expenses incurred in tax years after December 31, 2021, need to be deducted over five years. Those eligible costs for research conducted internationally are required to be deducted over 15 years. The Act includes a provision that delays when businesses must begin using the extended deduction timeline to 2026. This change will allow companies the opportunity to immediately recover eligible expenses.
- Extension of 100% Bonus Depreciation – The Tax Cuts and Jobs Act (TCJA) allowed companies to fully deduct the cost of certain capital assets from the fourth quarter of 2017 until the end of 2022. Starting in 2023, a 20% per year phase-out will start lowering the value of bonus depreciation over five years. The Act will restore 100% bonus depreciation retroactively starting in 2023 through the end of 2025. It is important to note, that there will be no phase-out provisions meaning the full 100% depreciation would be available until 2025.
- Enhanced Section 179D Deduction – The Act also called for an increase to the maximum deduction allowed under Section 179D. The maximum deduction amount will increase from $1.16M to $1.29M with an increase in the phase-out threshold from $2.89M to $3.22M for tax years starting after 2023.
- Employee Retention Tax Credit (ERTC) Fraud Enforcement – The Act makes several changes to the ERTC which includes an increase in fraud penalties and more. Under the current law, there is a $100 penalty for each claim a paid tax preparer (including ERTC promoters) submits that does not comply with due diligence requirements. The Act increases the fines to the greater of $200,000 ($10,000 in the case of an individual) or 75% of the income of the ERTC promoter. There is also an increase in the statute of limitations for ERTC claim reviews from 5 to 6 years. Finally, there is a change to the deadline by which new claims can be filed. Under prior regulations, the deadline was April 15, 2025, but the Act bars additional claims after January 31, 2024.
- Threshold Increase for Form 1099-NEC and 1099-MISC Reporting – The Act also calls for an increase in the reporting threshold for services performed by an independent contractor. Under current regulations payments of $600 would trigger a reporting requirement. If passed, it would be increased to $1,000. The change will apply to payments made after December 31, 2023.
The Act calls for several important tax changes which are certainly taxpayer-favorable, sans those impacting the Employee Retention Tax Credit. Since the legislation is still under consideration it is possible modifications may be made. We will keep you updated on new developments. If you need assistance with an accounting or tax issue, WhippleWood CPAs can help. For additional information call 303-989-7600 or click here to contact us. We look forward to speaking with you soon.