ASA Supports Tax Relief for American Families and Workers Act
On January 31st, the House passed H.R. 7024, the “Tax Relief for American Families and Workers Act,” by a vote of 357-70, with 47 Republicans and 23 Democrats voting against it. The House passed the package with wide bipartisan support after months-long negotiations between House Ways and Means Chairman Smith (R-MO) and Senate Finance Chairman Wyden (D-OR). ASA supported this legislation and last Thursday, August 1st, the Senate voted 48-44, which failed to muster the 60 votes needed to start debate on the $79 billion tax bill. The legislation would revive a trio of business tax breaks, including deductions for research and development expenses, and expand the child tax credit to make it more generous to low-income families. More specifically, the following provisions support small business research and development, interest, and capital expensing:
- Research & Development: The research and development tax credit allows businesses to deduct the cost of certain research and experimental expenses, such as researcher pay and facility costs. The 2017 Tax Cuts and Jobs Act required companies, beginning in tax year 2022, to deduct domestic R&D expenses over five years, or over 15 years for research conducted outside of the US, rather than in the year incurred. The measure would reverse the change and allow businesses to immediately deduct the cost of their domestic research or experimental expenses in the year paid or incurred for tax years 2022 through 2025. The requirements for foreign R&D expenses wouldn’t be modified. Deductions would be allowed for software development expenses and would be prohibited for property acquisitions or oil and gas exploration.
- Business Interest Expenses: Prior to the 2017 tax law, businesses were allowed to deduct interest paid or accrued on a valid debt in a tax year. The overhaul limited the deduction to be 30% of a taxpayer’s “adjusted taxable income” (ATI), with some exceptions. The measure would allow businesses to calculate their ATI without including deductions for depreciation, amortization, and depletion for tax years 2022 through 2025.
- Bonus Depreciation: Bonus depreciation previously allowed businesses to immediately deduct some of the costs of qualifying depreciable property, such as equipment. The 2017 tax law modified the 100% bonus depreciation rate to decrease by 20 percentage points annually beginning in 2023 until it phases out after 2026. The measure would restore the 100% bonus depreciation for certain property placed in service in 2023 through 2025, for property with a longer production period placed in service in 2023 through 2026, and for certain plants that bear fruits and nuts in 2023 through 2025.
- Payments Reporting: Under current law, businesses are required to report information on tax forms for payments of at least $600 executed by an independent contractor. The measure would generally increase the reporting threshold on 1099-NEC and 1099-MISC forms for such payments to at least $1,000 beginning in calendar year 2024. The reporting threshold would be adjusted for inflation beginning in 2025.