Page 66 - BusinessWest February 19, 2024

“Inabidto support the innovative spirit of America, the Tax Relief for American Families and Workers Act also includes provisions
to delay the requirement
to capitalize and amortize research and experimentation expenditures.”
tage for growing families.
The proposed bill introduces a single change regarding the
child tax credit. Currently, the credit is $2,000 per child for taxpay- ers who do not exceed certain income thresholds. A portion of this credit can be refunded up to $1,600 in 2023. The refundable por- tion is limited based on the number of qualifying children and the taxpayer’s earned income.
Under the proposed law, the refundable amount will be calcu- lated per child, resulting in a total refundable amount. This change applies to the 2023-25 tax years. Additionally, the maximum amount of the refundable credit will be increased to $1,800 for 2023, $1,900 for 2024, and $2,000 for 2025. The overall child tax credit will also be adjusted for inflation from 2024 onward.
Notably missing from this legislation was a provision that addresses an aspect of the state and local tax deduction, which was capped at $10,000 by the Tax Cuts and Jobs Act in 2017. The $10,000 cap applies to taxpayers filing either single or married fil- ing jointly. Advocates were hoping for a provision to increase the married filing joint cap to be twice the single cap and eliminate that marriage penaly.
BUSINESS TAX RELIEF
In a bid to support the innovative spirit of America, the Tax Relief for American Families and Workers Act also includes provi- sions to delay the requirement to capitalize and amortize research and experimentation expenditures. This is further bolstered by an extension of the 100% bonus depreciation for properties in service prior to Jan. 1, 2026.
For the hardworking business sector, the Act provides an increase in the Code Sec. 179 deduction limitation and expense limitation for property put into service post-2023.
Research and Experimental Expenses
Under current law, domestic research and experimental expen- ditures incurred in tax years starting after Dec. 31, 2021 must
be amortized over five years. Previously, these expenses could
be immediately deducted in the year they were paid or incurred. Research or experiment costs outside the U.S. are deductible over a 15-year period. The proposed law would postpone the application of this rule for research and experimental costs related to domestic activities until tax years starting after Dec. 31, 2025. There will be no change for activities outside the U.S. The bill includes transition- al rules for research credits and accounting changes.
Observation: H.R. 7024 provides that a taxpayer can reflect the retroactive application of Section 174 expensing via a change in method of accounting with either a one-year Section 481(a) adjust- ment or an elective two-year Section 481(a) adjustment. Alternative- ly, eligible taxpayers generally would be permitted to amend their first tax year beginning on or after Jan. 1, 2022, to reflect current expensing of eligible Section 174 expenditures. Due to the late pas- sage of this bill, businesses may want to consider applying for an extension of time to file their returns so they can analyze which of the three options is most beneficial for them.
Business Interest Limitation
Under current tax law, prior to 2022, the calculation of adjusted taxable income for the business interest expense limitation (Code Sec. 163(j)) excluded deductions for interest, taxes, depreciation, amortization, or depletion (IBITDA). However, starting from 2022, only deductions for interest and taxes were considered, exclud-
ing depreciation, amortization, and depletion. The new law would reintroduce depreciation, amortization, and depletion for tax years starting after Dec. 31, 2023, and before Jan. 1, 2026. Additionally, taxpayers can choose to include depreciation, amortization, and depletion for tax years beginning after 2021 and before 2024.
Observation: H.R. 7024 provides that a taxpayer can reflect the retroactive application of using IBITDA to calculate the interest limitation. The bill does not provide as much information on how
to effect the retroactive elction as it does with Section 174. Taxpay- ers with large limitation in 2022 may find it advantageous to amend their returns for this retroactive adoption. It is also unclear if you can elect to provide the provision for 2023 without amending 2022.
For the hardworking business sector, the Act provides an
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