Section 174 Fix (sort of)? Early end of ERC? Bonus back up to 100%? The Tax Relief for American Families and Workers Act of 2024
Why wouldn’t we want to get a new tax bill that impacts 2023 returns in 2024? It seems that Congress believes we may be due. The House Ways and Means Committee has announced a bipartisan bill to provide tax relief through renewal of some previously expired provisions, but pays for it with some changes to the Employee Retention Credit. The Tax Relief for American Families and Workers Act of 2024 does the following:
- Revives 100% bonus depreciation for property placed in service after December 31, 2022 and before January 1, 2026.
- Retroactively restores the ability to deduct domestic research and experimentation costs that were required to be capitalized beginning in 2022 under Section 174. Many companies saw severe negative tax implications from the requirement to amortize these costs instead of allowing immediate deductions. Section 174 capitalization would merely be delayed until 2026. Expense incurred outside the US would still be capitalized and amortized over 15 years.
- Section 163(j) related to the limitation of the business interest deduction would also be changed to allow depreciation and amortization back into the limit calculation as had been the case prior to the 2022 tax year. Many taxpayers got trapped in an addback of their interest expense because of the increase in interest rates.
- Changes the refundable portion of the child tax credit from $1,600 per qualified child to $1,800 per qualified child in 2023, $1,900 in 2024 and $2,000 in 2025, along with an inflation adjustment to the general $2,000 total credit amount for 2024 and 2025
- Increase in he Section 179 deduction limit to $1.29 million, reduced by the amount by which the cost of acquired assets exceeds $3.22 million. Both amounts are adjusted for inflection for taxable years beginning in 2024.
- Increases the threshold for information reporting on Form 1099-MISC and 1099-NEC from $600 to $1,000, indexed for inflation beginning in 2024
All of these provisions are extremely taxpayer friendly, but at a potentially significant cost. Under current law, taxpayers can file Employer Retention Credit claims through April 15, 2024 for 2020 claims and April 15, 2025 for 2021 claims. If passed, the Tax Relief for American Families and Workers Act would bar filing of any ERC claims as of January 31, 2024. There has been so much fraud in this area that IRS is concerned about additional fraudulent claims by promotors. In addition to the change in the filing deadline, a hefty fine has been included for those involved in erroneous and false claims. There are still many eligible taxpayers that have not yet filed their ERC claims and if your claim is in process, reach out to your provider immediately to check its status. If your claim is finalized and ready to mail prior to January 31, make certain to send it via certified mail. For more information see the following article: Draft Legislation Proposes Halt to All ERC Filings by January 31, 2024 : 24 : Articles : Resources : CLA (CliftonLarsonAllen) (claconnect.com)
Again, this is merely draft legislation. It has not been passed and it is not final. If it is though, it will certainly benefit taxpayers in many respects but may delay filing of income tax returns as software must be re-vamped to change bonus depreciation calculations and interest limitations and the child tax credit. Be patient over the next few weeks to see what transpires as you may not want to be in a hurry to file your income tax return…but if you have a pending ERC claim, move quickly to get it submitted before January 31.
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