In a landmark move, the U.S. is expected to usher in in a new era of tax policy with the Tax Relief for American Families and Workers Act of 2024. While this bill has not yet been passed, experts expect it will be adopted sometime before the end of this month. This transformative legislation stands as a beacon of hope for American families and businesses, offering substantial tax relief and spurring economic growth.
In this article, we'll explore the key features of the Act, which range from enhanced tax deductions to revamped compliance measures. Our focus is to unravel the complexities of this Act, providing you with a clear understanding of how it impacts businesses and families alike.
Enhanced Deductions for Research and Experimental Costs
A major update introduced in the Tax Relief for American Families and Workers Act is the revision of deductions for research and experimental expenditures incurred between December 31, 2021 and January 1, 2026. Previously, such costs were required to be deducted over a five-year period, placing substantial financial strain on innovation-driven companies.
The Act will allow immediate and full deductions for research expenses in this period. This adjustment directly incentivizes R&D activities and investments in the U.S. by providing more upfront tax relief. Essentially, the Act prevents the impending five-year amortization rule from kicking in until 2026.
More Flexibility for Interest Deductions
The Tax Relief for American Families and Workers Act also introduces important changes regarding the computation of Adjusted Taxable Income (ATI) for purposes of business interest deductions. Historically, the tax code required the ATI calculation to align with an EBITDA model, excluding depreciation, amortization and depletion. However, the Act will allow a temporary shift to an EBIT approach from 2022-2023.
In other words, for tax years 2022 and 2023, the Act will enable businesses to opt to factor deductions for depreciation, amortization and depletion into their ATI calculations. This provides the flexibility to determine interest deductions based on EBIT rather than EBITDA. Post 2023, the code reverts to the EBITDA framework for another three years.
Extension of 100 Percent Bonus Depreciation
Originally set to phase out after 2023, bonus depreciation is now slated to continue at the 100 percent level through the end of 2025. Certain long-life assets even qualify through 2027. Thereafter, the bonus will taper down incrementally over five years.
Essentially, the Tax Relief for American Families and Workers Act sustains this accelerated depreciation regime for another four to five years across the board. This maintains the tax code’s most powerful incentive for driving modernization and capital investments over the near-term horizon.
Increased Limits on Expensing Depreciable Business Assets
The Tax Relief for American Families and Workers Act will deliver a surge in the amount of capital investments that small businesses can immediately expense. Under Section 179, the maximum deduction rises by 29 percent from $1 million to $1.29 million. Likewise, the phase-out threshold, dictating when the expensing benefit starts declining, grows by 28 percent—from $2.5 million to $3.22 million.
Making these inflated amounts permanent (with post-2024 indexing for inflation) lets small- and medium-sized businesses expense a greater share of equipment purchases upfront. Rather than slowly deducting costs over time, larger outlays can now be offset against income in year one.
Strengthened Enforcement for Employee Retention Tax Credit
The Tax Relief for American Families and Workers Act intensifies enforcement regarding the COVID-related Employee Retention Tax Credit (ERTC). Specifically, penalties are heightened considerably for those caught intentionally aiding ERTC abuse. The statute of limitations for investigations also expands from three years to six years.
Additionally, the legislation imposes new $1000 fines for each instance of non-compliance with due diligence rules around the tax credit. These rules ensure only eligible recipients claim the relief.
Collectively, these measures aim to reinforce oversight and accountability within ERTC distribution. After pandemic-driven shifts opened the door for predatory actors, the reforms look to protect system integrity moving forward.
Wider Economic and Social Impacts
While much of the Tax Relief for American Families and Workers Act centers on business taxes, it also encompasses an array of provisions touching on broader economic and social policy areas, including:
- Enhanced Child Tax Credits: Changes provide working parents with more generous credits and increased refundability. This flexibility aims to ease pocketbook pressures for many families.
- Stronger ties abroad: Initiatives like the U.S.-Taiwan tax alignment deal help American firms better compete globally while promoting cross-border commerce.
- Disaster tax relief: Recognizing recent climate events, the Act extends targeted relief measures to aid hard-hit communities with rebuilding efforts.
- Affordable housing expansion: Through LIHTC improvements, wider access to affordable homes may relieve pressured housing markets across different states.
Conclusion: Expert Guidance Now Critical
The scale of changes expected to be ushered in by The Tax Relief for American Families and Workers Act makes professional guidance a critical next step. The sweeping revisions impact both corporate finances and personal filings across the board.
While stimulus for business investment and growth sit at the legislation’s core, everyday taxpayers also face adjustments around credits, deductions and more. Even savvy filers could overlook new exemptions without expert insight.
Likewise, businesses in innovation-driven sectors will want to ensure they fully capitalize on the array of new deductions now available. The incentives at play could profoundly impact R&D programs, capital expenditure plans and hiring initiatives. But realizing the savings requires calculated implementation.
In short, the Act may provide substantial relief, but unlocking the value remains contingent on understanding all nuances at a granular level. To that end, we at Engineered Tax are poised to translate legislative changes into tailored action plans for taxpayers and companies alike. With expertise spanning everything from real estate to research and development, we can provide the individualized guidance required to realize the Act’s full savings potential. Don’t leave money on the table—consult the pros to navigate this historic overhaul with confidence.
