On January 31st, 2024, the House of Representatives passed bill H.R.7024 Tax Relief for American Families and Workers Act of 2024 which aims to provide tax relief and support for American families and workers. The bill now heads to the Senate for consideration. This legislation encompasses a wide range of tax incentives to stimulate economic growth and job creation. Highlighted below are some significant business tax provisions within this framework.
Previously, the Tax Cuts and Jobs Act of 2017 allowed businesses to immediately expense qualified property placed in service after September 17, 2017, and before January 1, 2023. With the expiration of the Tax Cuts and Jobs Act of 2017, the bonus deprecation percentage will begin to phase out and decrease by 20 percent per calendar year for qualified property placed in service after December 31, 2022, and before January 1, 20271. The proposed bill would extend the 100 percent bonus depreciation for qualified property placed in service before January 1, 2026, which allows businesses to fully expense the qualified property in the year in which the property was placed in service.
Under current law, domestic research and experimental expenditures beginning after December 31, 2021, are required to be amortized over a five-year period, starting at the midpoint of the taxable year in which the expense is paid or incurred. For costs attributable to research conducted outside the U.S., such costs must be amortized over 15 years. The proposed bill would delay the amortization of domestic research or experimental costs over a five-year period to tax years beginning after December 31, 2025, which allows businesses to immediately expense the research and experimentation expenditures.
Businesses may elect to expense qualifying property instead of depreciating the asset over a specific period. Under current law, the deduction limitation is $1.16 million, and the expense limitation is $2.89 million for tax years beginning in 2023. The proposed bill would increase the deduction limitation to $1.29 million, and the expense limitation to $3.22 million for property placed in service after December 31, 2023. The limitations would be adjusted for inflation in 2024.
Under current law, for tax years beginning after 2021, the computation for adjusted taxable income is computed with the deductions for depreciation, amortization, and depletion. The deductions for depreciation, amortization, or depletion attributable to a trade or business were previously added back to determine the adjusted taxable income. The proposed bill would extend the add back of depreciation, amortization, and depletion to taxable years beginning before January 1, 20262.
The proposed bill would increase the filing threshold from $600 to $1,000 for reporting income earned by an independent contractor or subcontractor and for certain other payments made after December 31, 2023. The filing thresholds would be adjusted for inflation in 2024.
To combat fraudulent COVID-related ERTC claims by promoters3, the proposed bill increases assessable penalties for aiding and abetting the understatement of tax liability. The amount of penalty imposed is the greater of $200,000 ($10,000 in the case of a natural person) or 75 percent of the gross income of the ERTC promoter derived (or to be derived) from providing aid, assistance, advice, or document with respect to a return or claim for ERTC refund.
1 Longer production property and certain aircraft may be eligible for a one-year delay of the annual 20 percent decrease.
2 The taxpayer may elect to apply the extension retroactively for taxable years beginning after December 31, 2021.
3 Any person who charges fees based on the amount of the credit or meets a gross-receipts test, provides aid, assistance, advice, or other document relating to an ERTC.
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