On January 19, 2024 the House Ways and Means committee approved the Tax Relief for American Families and Workers Act of 2024. The bill is expected to be passed by the House in the coming days, but may not be passed by the Senate until March or April. Typically, we do not send an update of a tax bill that has not passed, but this bill contains several provisions that impact 2023 tax year filings and may cause certain business returns to be delayed in filing. The significant provisions of the bill that impact 2023 tax filings and their potential impact are listed below.
Under current law, bonus depreciation for 2023 would allow for additional first year depreciation of 80-percent of qualifying assets with the remainder taken over the IRS prescribed useful life. If the bill passes, bonus depreciation in the first year would be 100-percent of the qualifying asset cost for calendar years 2023 through 2025. Clients that have significant bonus depreciation for 2023 will need to discuss with their Smith Schafer tax professional how this impacts their 2023 tax filing.
Research and Experimental Expenses
Under current law, research and experimental expenses incurred after 2021 are subject to a 5 year amortization period, and not currently deductible. If passed, the bill would allow for full expensing of domestic research and experimental costs through 2025. Because this provision of the bill would be retroactive back to 2022, it is unclear how it would apply to the costs that were capitalized in 2022. Taxpayers who capitalized costs under this provision in 2022 may need to wait until there is further guidance in order to file their 2023 tax returns.
Business Interest Limitation
Under current law, certain taxpayers are subject to an interest limitation of 30% of adjusted taxabe income. The bill would change the income limitation to be based on income before interest, depreciation, amortization, and taxes. Effectively allowing businesses affected by this provision to add-back depreciation to determine whether the 30% limit applies. This provision would be effective for tax years 2023-2025. Taxpayers affected by this limitation will need to discuss with their Smith Schafer tax professional how this impacts their 2023 tax filing.
Employee Retention Credit
The bill would cut-off filing of the Employee Retention Credit as of January 31, 2024 and extend the statute of limitations on already filed claims to 6 years allowing the IRS additional time to investigate fraudulent claims. The bill would also increase penalties for both taxpayers and providers who filed fraudulent claims.
Child Tax Credit
The bill would expand the refundable portion of the child tax credit for tax years 2023-2025. The non-refundable portion would remain unchanged, but the refundable portion would be increased for taxpayers who qualify. It is expected that this provision should not cause a delay in filing for those impacted because the IRS should be able to refund the credit after the taxpayers have filed.
Your tax professionals at Smith Schafer are watching this bill closely and considering the impacts to our clients on a client-specific basis. As we prepare and review your tax filings for 2023 we will be reaching out to discuss any of these provisions that apply to you.
Please reach out to our team at Smith Schafer anytime with any questions.