Congress seems ready to act quickly on newly proposed tax legislation after the recent passage of the debt ceiling bill. Late last week, three important tax bills were introduced, and subsequently passed out of the House Ways and Means Committee. These bills, which are being considered as part of a general tax and jobs package would bring sweeping change to individual standard deductions, research and experimental expenditure treatment, and important energy related tax incentives, among other things. Despite that, these proposed legislative changes face a long and fraught road to passage, they are especially important to consider due to the fact that many of the adjustments would be retroactive such that it may be advisable to delay certain impacted filings, where possible, until more is known about the future of this tax legislation.
"Build It in America Act"
The most robust of the three bills is the "Build It in America Act" (HR 3938) which contains important provisions for retroactive adjustments, tax incentive repeals, and changes in accounting practices. Specifically, the bill proposes to:
- Delay the requirement to amortize R&E expenditures until tax years beginning after 1/1/26Allowing for retroactive immediate deduction of eligible expenditures paid or incurred in tax years beginning after 12/31/21 and before 1/1/26
- Retroactively expand interest expense deductibility under section 163(j) by allowing the add back of depreciation, amortization, and depletion to adjusted taxable income, which was no longer allowed after 12/31/21
- Override in part foreign tax credit regulations by allowing for election to disregard specified foreign tax regulations for Western Hemisphere tax in certain instances for tax years beginning after 12/31/21 and before 1/1/27
- Repeal the Superfund tax on petroleum
- Impose additional excise taxes on real estate sales by foreign companies and investors
- Repeal several of the Inflation Reduction Act's energy incentives, including the Electricity Production Credit, the Clean Electricity Investment Credit, the Credit for Previously Owned Clean Vehicles, and the Qualified Commercial Clean Vehicles Credit
- Extend 100% bonus depreciation to assets placed in service through 2025, which is scheduled to reduce to 80% in 2023, 60% in 2024, and 40% in 2025
The Small Business Jobs Act
The Small Business Jobs Act (HR 3937), another recently introduced tax bill proposes significant adjustments to small businesses activities, including:
- Increasing the employer reporting threshold for subcontracted labor from $600 to $5,000
- Increasing the reporting threshold for Venmo and Paypal type payments back to $20,000
- Expanding the Opportunity Zone program to rural communities
- Increasing immediate expensing limit (Section 179) for small businesses to $2.5 million
- Expanding §1202 incentives to apply to investors in startups organized as S Corporations (not just C corps) for any stock acquired after the Act is enacted and making important holding period adjustments to the program
Tax Cuts and Working Families Act
Lastly, the Tax Cuts and Working Families Act (HR 3936) is a smaller piece of legislation with large potential impacts to individual taxpayers. This bill would rename the "standard deduction" to be called the "guaranteed deduction" and would increase it, with adjustments for inflation and limits based on gross income, for tax years 2024 and 2025 by a "bonus guaranteed deduction amount" of:
- Joint Return & Surviving Spouses: $4,000
- Head of Household: $3,000
- Any Other Case: $2,000
Although it is highly unlikely that these bills would pass as currently drafted, many of the provisions (such as research and experimental expense deduction) enjoy bipartisan support and have a high likelihood of surviving markups. There are other provisions (repeal of energy incentives, exclusion of child tax credit) pointing to a high likelihood that the content of these bills will be adjusted and may still face a significant uphill battle on the Senate side. While there seems to be a lot of motivation to act, and optimism from House Republicans, this of course that doesn’t change the opposition that they will face in the Senate. Regardless of their likelihood of passage it is important to consider the proposed changes and what they could mean for your business.
We will continue to monitor these bills and inform you of any important legislative changes as they occur. However, if you need further guidance or have any questions in the meantime, we are here to help. Please do not hesitate to reach out to discuss your specific situation.
This material has been prepared for general, informational purposes only and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. Should you require any such advice, please contact us directly. The information contained herein does not create, and your review or use of the information does not constitute, an accountant-client relationship.