In a tax world where nothing should surprise us anymore, we have yet another surprise. The House Ways and Means Committee voted overwhelmingly to advance the Tax Relief for American Families and Workers Act of 2024. For the past year or so, we’ve talked at length about two tax issues – the capitalization and amortization of R&D expenses and the Employee Retention Credit. This bill addresses both (and a few other items, as well).
First up, IRC Section 174 – the requirement that R&D expenses be capitalized and amortized – has wreaked havoc with tech companies and its signification hampered the cash flow of startups throughout 2022 and 2023. Despite bipartisan support to repeal the provision, Congress couldn’t get it done. We’ve been told this was because one side of the aisle wouldn’t help the other side fix the problem that they created without getting something in return; well, they finally got it. With the repeal of the capitalization rules (retroactive back to 2022), we also got an expansion of the child tax credit. The result is that R&D expenses can now be expensed currently, which is what the rule was prior to 2022. What we don’t know is how this is going to happen. Will the IRS simply allow a “catch-up” adjustment in 2023, or will we have to amend 2022? We shall see.
Employee Retention Credit
Now on to everyone’s favorite topic – the Employee Retention Credit. This one’s pretty simple – it’s gone after January 31st. If you qualify, you’d better get your claim in now!
And just when you thought it was safe to go back into the bonus depreciation water, 100% bonus depreciation is back. Without this extension, bonus depreciation was at 80% for 2023, and continued to decrease until it was gone. That’s right – they’ve phased out the phase out… again.
Additional Tax Updates
Two other items of note – the interest expense limitation was eased meaning that it will apply to fewer taxpayers, and the Section 179 expensing was expanded. There are also several other very narrowly applicable provisions included that are beyond the scope of this course.
To be clear – this is not yet a done deal. We’re told this bill has broad bipartisan support, and just the fact that it came out of committee is a very favorable development, but it’s not done until it’s done.
One final item to note – the R&D expensing and bonus depreciation extension are only good through 2025 and will need to be fixed with all of the other expiring provisions contained within the Tax Cuts and Jobs Act, so stay tuned!
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