The Tax Relief for American Families and Workers Act of 2024 (“the bill”), which is currently under consideration in Congress, contains many provisions that could directly impact manufacturers and distributors. The most pertinent examples being immediate research and development (R&D) expensing, interest deductibility, and 100% accelerated depreciation—all of which could help many manufacturers and distributors increase competitiveness, hiring, wages, facilities, and investments.
It is important to familiarize yourself with the details of the bill in case it passes, but it has not yet been signed into law. The framework and technical summary of the bill was announced by Senate Finance Committee Chairman, Ron Wyden (D-Ore.), and House Ways and Means Committee Chairman, Jason Smith (R-Mo.), on January 16, 2024. Three days later, the House and Ways and Means Committee advanced the actual bill text to the House floor, and as of January 31, 2024 the House has passed the bill. It is currently awaiting Senate action with no clear timeline for them to take it up, additionally many Senators have expressed a desire to make changes to the bill, so it is important to remember that the current draft discussed below could either be modified or removed entirely as the bill continues to move through the legislative process.
The bill, if passed as currently drafted, would:
- Terminate the CARES Act employee retention tax credit (ERC) program early (deadline for application would be January 31, 2024), extend the ERC statute of limitations for all periods to six years, and increased the penalties for promoters of fraudulent ERC claims (would apply retroactively).
- Delay the requirement for businesses to capitalize and amortize their domestic research or experimental costs over a five-year period until taxable years beginning after December 31, 2025.
- Change the definition of adjusted taxable income (ATI) for purposes of computing currently deductible business interest expense under Internal Revenue Code (“IRC”) Section 163(j) for taxable years beginning after December 31, 2023, and before January 1, 2026. The change would generally allow most businesses and individuals that are subject to the rules under IRC Section 163(j) to deduct additional amounts of interest expense that would otherwise be suspended as excess business interest expense.
- An election could also be made to apply this provision to taxable years beginning after December 31, 2021.
- Reinstate 100% bonus depreciation for most qualified property placed in service after December 31, 2022, and before January 1, 2026. Qualified property placed in service on or after January 1, 2026, would be eligible for 20% bonus depreciation. Similar changes would also apply to property with longer production periods and for plants that bear fruits or nuts.
- Increase the IRC Section 179 small business expensing limit for property placed in service in taxable years beginning after December 31, 2023, to $1.29M (begins to phase out after $3.22 million of qualified property expenditures).
It’s apparent that this bill contains many significant tax provisions for manufacturers and distributors to consider, and although it’s future is uncertain (and the above is still subject to change), we encourage you to consider the impacts of this potential legislation.
If you need further guidance or have any questions on this topic, our trusted experts are here to help. Please do not hesitate to reach out to discuss your specific situation.
This material has been prepared for general, informational purposes only and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. Should you require any such advice, please contact us directly. The information contained herein does not create, and your review or use of the information does not constitute, an accountant-client relationship.
