We don’t usually comment on pending legislation because of the uncertainty of its passage. However, a tax bill is being fast-tracked through Congress that includes retroactive provisions that could affect your 2023 tax bill . . . if it passes both Houses of Congress quickly enough. The bill enjoys a rare commodity – broad bipartisan support – and lawmakers have an ambitious goal of passing it as soon as possible in order to include the bill’s provisions for this year’s tax filing season (which officially began January 29, 2024). Here are the highlights of what may be coming soon to a tax return near you:

The Tax Relief for American Families and Workers Act of 2024

Impact on Business Taxpayers

This bill could affect business tax returns in three significant ways:

Extension of 100% Bonus Depreciation

In 2023, bonus depreciation was set to ratchet down by 20% for the next few years until disappearing in 2027. The Act would extend 100% bonus depreciation for qualified property placed in service during 2023 through 2025. In 2026, the originally scheduled 20% rate would apply, going down to 0% in 2027.

Increased Section 179 Deduction

For 2023, business taxpayers can expense up to $1.16 million of the cost of qualifying property rather than depreciating. For qualifying property placed in service in excess of $2.89 million, the $1.16 million is reduced dollar for dollar by the excess amount. Under the proposed Act beginning in 2024, the $1.16 million would become $1.29 million, reduced by the amount of qualifying property placed in service during the tax year exceeding $3.22 million. These amounts would continue to be indexed for inflation.

Research and Experimental Expenses

Beginning in 2022, domestic research and experimental expenditures (often referred to as R&D costs) are required to be amortized over a five-year period rather than immediately deducted. The proposed law would delay this change to 2026.

Impact on Individual Taxpayers

The Act includes one provision affecting individual taxpayers – an increase in the refundable portion of the child tax credit from its current $1,600 level to $2,000 by 2025. This provision adjusts the method for calculating the portion of the child tax credit that can be refunded if it exceeds the calculated tax of a taxpayer.

Other Tax-Related Items

Other items noted in the proposed legislation cover tax treaty benefits to residents of Taiwan, disaster tax relief, affordable housing tax credit provisions, and the threshold for certain 1099 reporting in future years.

How does Congress Plan to Pay for These Tax Breaks?

In order to pay for the bill’s provisions and remain “revenue neutral”, the Committee came up with a creative strategy – using changes to the much-abused Employee Retention Tax Credit (ERC). The deadline for filing ERC claims for 2020 and 2021 would be accelerated to January 31, 2024 (yes, just about a week from now), and increased penalties would be assessed to promoters of the ERC who knowingly encourage taxpayers to claim tax credits to which they were not entitled.

We’ll keep you updated as this legislation proceeds.