The bipartisan tax package awaiting its fate in the Senate contains multiple retroactive provisions that would affect the current filing season, but some taxpayers should not wait to file while others may wish to hold off until congressional action, according to Kasey Pittman, a director of Baker Tilly’s Washington tax practice.
The Tax Relief for American Families and Workers Act of 2024 (HR 7024), a tax policy compromise between leaders of the taxwriting committees in both chambers, is ready for Senate deliberation after advancing out of the House January 31 by a vote of 357-70. Several items in the bill revise individual and business tax benefits that apply to tax year 2023, the returns for which the IRS began accepting January 29. Among the bill’s main provisions are a temporary boost to the Child Tax Credit (CTC) and extensions of Tax Cuts and Jobs Act (TCJA; PL 115-97) business incentives.
Note: Although the House quickly passed the bill under the suspension of rules without amending the Ways and Means Committee version, a required 60-vote threshold in the Senate may not be reached without at least some tweaks, if not substantial changes. This article reflects the House engrossed version.
IRS Commissioner Danny Werfel previously encouraged CTC claimants to not wait on Congress to act and go ahead and file when ready. Pittman agreed with Werfel’s assessment, telling Checkpoint in an interview that the bill “contains language that instructs Treasury to recalculate the [CTC] with the information provided by the taxpayer and to automatically issue refunds as applicable.”
“I would say for individual filers, I would not be hesitant to file a tax return,” said Pittman, adding that it should be a “straightforward process.” She hopes, though, that the IRS would conduct a “significant” awareness campaign so taxpayers understand that they would not need to file an amended return, which would “be beneficial for everybody.”
Business taxpayers “who are meaningfully affected by the potential changes in this tax bill” may wish to use a “wait and see approach,” however, since the bill would generally be taxpayer favorable and it is still early in the tax season, she explained.
One provision in the bill that businesses would enjoy this tax season retroactively delays the capitalization requirements through 2025 for qualifying domestic research and experimentation expenditures. “There are transition rules provided by the bill, which is really helpful” Pittman commented. “It allows taxpayers to treat this as a change in accounting method in the 2023 tax year and to take that delta and treat it as a [Code Sec. 481(a)] adjustment, taking it into account either in 2023 or ratably over 2023 and 2024.” She would anticipate “pretty quick guidance from Treasury” to clarify implementation.
The TCJA limited the deduction for business interest expense to 30% of adjusted taxable income (ATI). Until 2022, ATI was calculated based on earnings before interest, taxes, depreciation, and amortization (EBITDA). Under current law, for 2022 and later years, the ATI calculation is limited to earnings before interest and taxes (EBIT). The proposed tax deal restores EBITDA for 2024 and 2025 and allows taxpayers to choose between EBIT and EBITDA for 2022 and 2023.
Pittman said businesses that are “highly leveraged are running up against this calculation, and there are more and more businesses hitting this calculation as the cost of borrowing has increased so substantially over the last two years.”
Finally, the bill would restore 100% bonus depreciation for qualifying property, such as equipment and other assets. Pittman emphasized that “bonus depreciation is tied not to the taxpayer’s year but to the year the asset is placed in service.”
“We have fiscal year filers whose year closed sometime during 2023 before December 31 2023, who have already filed tax returns there. I would be looking to see if the IRS would provide relief for those taxpayers in terms of being able to make a prospective adjustment on their next tax return.”
Because these business provisions would likely reduce tax liability, she reiterated that for applicable business taxpayers, it is worth following how the bill fares in the Senate before filing — at least for now. “I’m hoping that we get some indication as to whether or not this bill remains viable in the next week or two before we get to a really difficult inflection point of [if] we should be pressing send on some of these returns,” Pittman said.
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