On Tuesday, news broke that Congress had agreed upon a framework for some much-needed tax legislation. The deal trades an increase in Child Tax Credits (CTC) for restoring immediate R&D expensing and Bonus Depreciation (through 2025). These provisions will provide an immense relief to businesses and business owners who are suffering under the weight of inflation and massive tax increases on R&D spending and capital purchases.
The Tax Relief for Americans and Workers Act of 2024 is receiving significant media attention and members are signaling that they want to have it passed before the official start of tax season. However, it still faces some obstacles. For one, discussion on the Bill comes at a time when Congress is still fighting over how to fund the government. Additionally, there are some members who believe the bill does too much to help big corporations.
Unfortunately, lawmakers still think that allowing companies the ability to immediately deduct R&D wages, supplies, and other expenses is some sort of special corporate tax break. Obviously, it is not as we wrote here. The unfortunate part of the TCJA was that it imposed a special penalty on R&D expenses, in turn making the US the most expensive country in the OECD to do R&D in. This new Bill would reinstate common sense tax policy that you are allowed to deduct costs in the year that they are incurred.
The loss of ability to deduct R&D expenses has hurt businesses of all sizes across all sectors. However, R&D amortization has had an outsized impact on small businesses. These companies typically do not have the same access to the capital as large corporations (which some politicians continually seek to pillory) and have had a hard time coming up with the cash to pay their massive tax bills.
Despite continual misunderstanding of this business issue by members of Congress, there is a lot of good news here.
- Both parties have signaled that they want to achieve a tax fix before tax season starts
- Congress has acknowledged that the continual onslaught of businesses pushing for tax reform has worked. They know that restoring R&D expensing and bonus depreciation is a priority.
- The Bill would make immediate R&D expensing retroactive to any expense incurred in a tax year beginning after 12/31/21.
- Bonus depreciation is restored to 100% for tax year 2023
Here are some ATS takeaways and action items from the latest news:
- Taxpayers and representatives need to continue to call their representatives to tell them to vote the Tax Relief for Americans and Workers Act of 2024
- Businesses that are impacted by any of these provisions may want to consider filing an extension. If the Bill passes we will need to see what guidance Treasury releases, especially on what to do with amortized R&D expenses.
If you would like some tips on how to approach your congressional representative. Please contact Andy at ATS. 401-949-5200