Legislative Update: Impact of Tax Relief Bill on R+E Expenses, Depreciation, + ERC

The US House of Representatives approved the Tax Relief for American Families and Workers Act of 2024 on Jan. 31, 2024.

The bill, now in the Senate, includes restoration of bonus deprecation, immediate deduction for research and experimentation (R+E) expenses under Section 174, interest expense deductions, an end date for claiming the Employee Retention Credit (ERC), increased child tax credits, and other provisions.

Some of these provisions only go through 2025, when significant tax provisions from the Tax Cuts and Jobs Act also expire.

As this bill moves through the legislative process, we want to summarize what is in the legislation in relation to your business and the impact it could have.

Highlights of the current version of the bill include:

• Restore the deduction for US-based R+E costs (Section 174) through 2025. This restoration would be retroactive to the 2022 tax year. It would allow research-related costs, such as wages, to be immediately expensed as soon as they are incurred. Taking an immediate deduction for these business expenses lines up with the treatment of such expenses for the last few decades. Note: this provision is not an expansion of R&D credits under Section 41 and has no impact on R&D credits.

• Restore 100% bonus depreciation through 2025 for qualified property put into service after Dec. 31, 2022.
• Increase the maximum amount taxpayers can expense from $1.16 million to $1.29 million of the cost of depreciable assets under Section 179. The total cost of the qualifying property placed into service would also increase from $2.89 million to $3.22 million.
• Restore the exclusion of depreciation and amortization for the 30% limitation on interest deductions until 2025. This restoration is retroactive to taxable years starting after December 31, 2023. Taxpayers may elect to make it retroactive to taxable years beginning after December 31, 2021.
• Enhance the child tax credit, which will be indexed for inflation. Taxpayers may calculate the refundable portion on a per-child basis for tax years 2023, 2024, and 2025. The refundable portion will also gradually increase for the same time period. Taxpayers may use either current or prior-year income to calculate the credit during tax years 2024 and 2025.
• End the period to submit Employee Retention Credit (ERC) claims on Jan. 31, 2024. The bill also increases the penalties for fraudulent ERC promoters and extends the limitation period for assessing ERC claims to six years.

If signed into law, the Tax Relief for American Families and Workers Act of 2024 could have a material impact on your business. While passage is far from certain, now is the time to consider what this legislation could mean for your business. Your Aldrich Advisor is here to discuss how you can achieve your business and financial goals—let’s talk.