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Year-end tax legislation is a no-go this December, with congressional lawmakers gone for the holidays. But there is movement behind the scenes and the hope of tax changes by mid-2024. The odds of any such package are about 50-50.
There’s lots for lawmakers to do when they come back in early January, including negotiating military funding for Ukraine and Israel, paired with upgraded security for the immigrant crisis at the U.S.-Mexico border. There is also the issue of funding the government so that we don’t have a shutdown in January or February.
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If there is a tax package, let’s look at what could potentially be included. Republicans want to fully restore three popular business tax breaks:
- R&D: Before 2022, firms could fully expense R&D costs in the year incurred. The 2017 tax law changed this for R&D costs in tax years that started after 2021. Firms must amortize R&D expenses over five years, and 15 years for overseas research.
- Bonus depreciation: Prior to 2023, businesses could deduct the full cost of new and used qualifying business assets with lives of 20 years or less. For 2023, the 100% write-off fell to 80%. It drops to 60% in 2024, 40% in 2025 and so forth.
- Interest deductions on business debts of large companies: The 2017 tax law limited many big businesses’ net interest write-offs to 30% of adjusted taxable income, with disallowed interest carried forward. Starting with tax years that began in 2022, depletion and amortization write-offs are accounted for in adjusted taxable income.
Democrats’ main focus is an expanded child tax credit. They cite the need to lift children out of poverty. Democrats would like to see a higher credit amount that is fully refundable with advance monthly payments, similar to the rules in place for 2021 returns. However, most Dems are resigned to the fact that such changes are very costly and lack GOP support. But narrow expansions might be feasible, such as a higher credit for working parents or full refundability of the current credit.
Believe it or not, a few tax-related items have bipartisan support. These include relief for victims of federally declared disasters in 2021, 2022 and 2023, expanded tax credits for builders of low-income and middle-income housing, plus some technical corrections to the SECURE 2.0 legislation enacted in late 2022.
Two things to keep an eye on, which won’t be part of any 2024 tax deal: Extension of provisions in the 2017 tax law affecting individuals, such as the lower tax rates, higher standard deductions, and the 20% write-off for qualified business income of owners of pass-throughs, all of which end after 2025. Also, a mark-to-market tax regime on the assets of the ultra-rich. For example, the Billionaire Income Tax proposal by Senator Ron Wyden (D-OR) would require individuals with over $100 million in income or $1 billion in assets to pay tax on their annual built-in gains, despite not selling the underlying asset.
This first appeared in The Kiplinger Tax Letter. It helps you navigate the complex world of tax by keeping you up-to-date on new and pending changes in tax laws, providing tips to lower your business and personal taxes, and forecasting what the White House and Congress might do with taxes. Get a free issue of The Kiplinger Tax Letter or subscribe.
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