The American Families and Workers Tax Relief Act of 2024, released by the House Ways and Means Committee on January 16, includes a series of provisions that could have a significant impact on taxpayers.
Overall, the bill would reduce the tax burden on American families and businesses through changes to the child tax credit, research and development spending, and employee retention credits. 100% bonus depreciation recovery. And the possibility of business interest expense deduction increases, but its effectiveness depends primarily on her IRS administrative ability.
child tax credit
Millions of households could be affected by changes that temporarily expand access to child tax credits for those already enrolled. If the bill passes, the average household eligible for the credit could see the value of the credit increase beyond its current level of $2,000 per eligible child under 17.
Proposed adjustments to the CTC would index the 2024 and 2025 Baseline Child Credit to inflation to protect the value of the credit from erosion by inflation and ensure that the financial support provided to families is in line with the cost of living. be able to do so. However, this does not apply for the 2023 tax year, so families may not receive additional relief for the time being.
Retroactively changing the reimbursable portion of the CTC could result in greater financial benefits for families, especially families with multiple children. The option to select the previous year's earned income for calculating the refundable portion in 2024 and 2025 can be particularly advantageous in situations where the taxpayer's income has decreased from the previous year.
The IRS's requirement to automatically recalculate the CTC for taxpayers who filed prior to the bill's enactment could result in additional refunds and an infusion of cash without filing an amended return. Nevertheless, there is uncertainty about the IRS' ability to implement these changes quickly, potentially delaying these benefits.
Business regulations
The Tax Cuts and Jobs Act, effective January 1, 2018, introduced temporary tax breaks to help U.S. businesses. Most of them are being phased out or will be phased out soon. The pending reform package breathes new life into some of the TCJA provisions that have proven to be most effective and addresses some of the lesser-known changes to the tax code.
In February 2023, the American Institute of Certified Public Accountants asked Congress to postpone the effective date of the domestic research expense capitalization amortization rules under Section 174 of the Tax Code (whose treatment is affected by the TCJA) until after December 31st. I requested that. 2025. The pending bill proposes to do just that.
The postponement will be a welcome reprieve for companies investing in research. Reducing the immediate tax burden could lead to increased research and development activity in the United States. However, the distinction between domestic and foreign research funding suggests a deliberate effort to encourage domestic innovation rather than foreign spending.
The bill would also cancel the calculation of adjusted taxable income under Section 163(j) to include depreciation, amortization, and depreciation charges, significantly impacting the business interest expense deduction. . This change could potentially increase deductions for businesses, improving their cash flow and ability to invest. The option to retroactively elect this definition of adjusted taxable income may provide immediate tax relief to certain businesses.
The proposed 100% bonus depreciation extension (another popular tax change introduced by the TCJA) would stimulate investment in new assets by allowing businesses to immediately deduct the total cost. There is a possibility. This provision could encourage capital investment and promote economic growth.
However, bonus depreciation for most depreciable assets will be reduced to 20% in 2026 and 0% in 2027, so businesses may accelerate their investment schedules in the coming years to maximize the benefits. There is a gender.
employee retention credit
Along with the Paycheck Protection Program, the Employee Retention Credit was introduced to assist businesses that have been adversely affected by the COVID-19 pandemic. Like the PPP, the ERC has also come under considerable scrutiny, including his IRS, which has identified a pattern of widespread fraud associated with the program.
Proposed changes to the administration of ERC claims could give the IRS more time to investigate fraudulent claims while protecting borderline cases from the harshest penalties.
Setting a firm January 31, 2024 deadline for ERC claims and extending the IRS evaluation period to six years could have a variety of effects. While this provides clarity and a final timeline for taxpayers, the extended assessment period may lead to longer scrutiny and audits.
The bill includes a provision that allows for an income tax deduction for wages related to invalid ERC claims that extend beyond the normal statutory refund claim period. This provides a safety net for taxpayers who may have accidentally violated their complex ERC requirements.
ERC enforcement
The IRS blamed those promoting fraudulent ERC services overnight as the primary culprits for the fraud associated with this program. The proposed bill includes several provisions designed to ensure that the worst of these violators are held accountable, while also navigating the ERC program at short notice. protects businesses that may have experienced difficulties or may have made innocent mistakes.
The increased enforcement and penalties for COVID-19 ERC promoters demonstrate a strong approach to compliance and deterring abuse. Taxpayers who engage with such promoters may need to reevaluate their claims and prepare for potential challenges.
Outlook
A comprehensive tax reform package, if passed, would bring big changes to taxpayers. Taxpayers, businesses, and tax professionals should pay close attention as this bill could rebalance their financial position and may require them to adjust their tax planning strategies to the new provisions. there is.
The impact of this provision will largely depend on the details of its implementation and the IRS's preparedness to facilitate a smooth transition.
This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.
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Michael D'Addio is a principal in Markham's Tax and Business Services practice, focusing on federal and state tax compliance and planning.
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