How Does This Apply to You?

This bill impacts businesses and individuals through changes in tax policies aimed to provide relief and support. Business owners are expected to benefit through the expansion of deductions along with other changes. For individuals with children, they may benefit from a higher refundable amounts per child. Read on to discover what some of the items the Act may have in store for taxpayers across the US.

Changes to Research & Experimentation Investments – This bill postpones the rule that makes businesses spread out the cost of their domestic research and experimentation (R&E) expenses over five years until years beginning after 12/31/2025 (i.e. January 1, 2026 for most calendar year taxpayers). R&E expenses can be immediately be deducted, providing a quicker financial benefit. There is no change for research activities performed outside of the US.

Bonus Depreciation – The legislative measure changes a provision known as bonus depreciation, affording businesses the opportunity to immediately deduct the entire cost of eligible assets placed in service during the period from December 31, 2022, to January 1, 2026. This serves as a robust incentive for businesses to invest in capital assets by frontloading the tax benefits. The 20% bonus depreciation continues to apply for qualified assets placed in service in 2026 and phases out in 2027.

Employee Retention Credit – The upcoming legislation intends to conclude the Employee Retention Credit (ERC) program, disallowing new claims after January 31, 2024. Noteworthy adjustments include dramatic increases in penalty for fraudulent ERC promotions and enhanced provisions aimed at curbing potential fraud within the ERC program. Additionally, the proposed bill extends the time frame during which the Internal Revenue Service (IRS) can assess matters related to the ERC, and it provides an extended opportunity for taxpayers with disallowed ERC claims to seek deductions. These measures collectively signify an effort to streamline and fortify the integrity of the ERC program.

Child Tax Credit – Currently set at $2,000 per child, the credit offers a refundable portion (currently up to $1,600 for 2023) based on earned income. The new law proposes statutory increases, with the maximum refundable credit reaching $1,800 for 2023, $1,900 for 2024, and $2,000 for 2025. The overall amount of the credit will be indexed for inflation in 2024 and 2025.

Disaster Relief – The bill has provisions for disaster relief, building on previous laws. It forgives penalties for early IRA withdrawals for qualified disaster distributions, allows repayment of withdrawn funds for home purchases, and increases loans from certain plans. Employers in affected areas can claim an employee retention credit, and special rules apply for casualty losses. The relief covers any federally declared disaster from January 1, 2020, to 60 days after the bill becomes law. It also excludes certain wildfire relief payments from income and provides relief for the East Palestine, Ohio train derailment.

As we move forward to the Senate proceedings, we maintain optimism regarding the positive impact The Act could have in cultivating a more innovative and competitive business landscape in the U.S., ultimately benefiting businesses and the economy. At Lifetime Tax Advisors we see the importance in staying well-informed about possible modifications, offering advice to clients, ensuring compliance with the changing tax environment, and preparing for proposed rule changes.

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