Below are the latest developments from the tax landscape, and this time, it’s a bipartisan effort led by the House Ways and Means Committee and Senate Finance Committee. Let’s dive into the key highlights:

Key Provisions:

  1. Full Expensing of Domestic Research Costs: Extended until 2026, including the current and upcoming tax years.
  2. 100% Bonus Depreciation: A boost for property placed in service from 2023 through 2025.
  3. Use of EBITDA: Now an option instead of EBIT in determining deductible business interest through 2025.

    Additional Highlights:

    • Increased eligibility for small business section 179 expensing.
    • Expanded refundability of the child tax credit for lower-income taxpayers.
    • Protection against double taxation of Taiwan-related income.
    • Additional disaster-related tax relief provisions.

    Cost Offsetting Measures: To balance the ledger, the legislation proposes:

    • A deadline for filing Employee Retention Credit (ERC) claims by January 31, 2024.
    • An extended period for IRS assessments related to erroneous ERC claims.
    • Increased due diligence requirements for ERC promoters, along with penalties for assisting in filing erroneous claims.

    Outlook for 2024: While the passage of tax legislation in 2024 is uncertain, the bipartisan agreement between committee chairmen is a promising step. The Smith-Wyden proposals strike a balance between business tax relief and the expansion of the child tax credit.

    The focus on refundability in these proposals suggests a growing consensus on this critical issue, potentially increasing the chances of legislation enactment in 2024. However, the Congressional calendar is currently centered on non-tax matters, and leadership support for advancing tax legislation remains unclear.

    Business Tax Provisions:

    • Required 5-year amortization of research costs gets a delay until 2026, with a retroactive effective date to the 2022 taxable year.
    • Preservation of 100% bonus depreciation for most property placed in service through 2025.
    • Extension of using EBITDA (earnings before interest, taxes, depreciation, and amortization) to determine ATI (adjusted taxable income) for tax years before 2026. Deductible business interest is generally limited to 30% of ATI.
    Small Business Expensing (Section 179): An increase in the maximum amount a taxpayer may expense in 2024, promoting growth and business investment.

    Child Tax Credit Refundability: Significant enhancements to benefit low-income taxpayers, reflecting a per-child basis determination and an overall limitation increase.

    Other Favorable Provisions: Legislation to address potential double taxation of Taiwan-related income, expansion of the low-income housing tax credit, and additional relief for taxpayers in disaster-affected communities, including provisions allowing certain wildfire relief payments to be excluded from income.

    Stay tuned for more insights and updates as we navigate through these legislative changes together.