Understanding the Tax Relief for American Families and Workers Act of 2024
The Tax Relief for American Families and Workers Act of 2024, once passed, will symbolize a legislative victory for taxpayers, especially small business owners and professionals, and deserves a detailed look due to its retroactive provisions and potential to affect the upcoming tax season.
For Families: A More Generous Child Tax Credit
The Child Tax Credit (CTC) sees a notable expansion for individuals. This credit calculates the refundable portion per child once the taxpayer’s earned income exceeds $2,500 by 15%. For tax years 2023 through 2025, the credit increases to $1,800, $1,900, and $2,000, respectively, offering substantial savings for families. Additionally, for the tax years 2024 and 2025, taxpayers can calculate their CTC based on the previous year’s earned income, providing flexibility in fluctuating income.
For Businesses: Incentives to Sustain and Grow
Several key provisions have been introduced to support business growth and adaptability:
Research and Experimentation Costs:
The bill delays the onset of a five-year amortization rule for domestic research and experimental costs to tax years beginning after December 31, 2025, providing an incentive for innovation.
Business Interest Limitation:
For tax years starting after 2023 and before 2026, businesses can compute adjusted taxable income (ATI) for interest limitation with reinstated depreciation, amortization, and depletion deductions, enhancing cash flow.
The Act extends the 100% bonus depreciation for qualifying property placed in service before January 1, 2026. This extension allows businesses to deduct the full cost of eligible property in the year of service, promoting investment in new assets.
Section 179 Deduction:
The deduction limit under Section 179 is increased for tax years starting after 2023, allowing businesses to expense up to $1.29 million and phase out thresholds starting at $3.22 million, indexed for inflation thereafter.
Combating Fraud and Ensuring Compliance:
The Act introduces stringent measures to curb fraudulent claims, specifically targeting the misuse of the Employee Retention Tax Credit (ERTC). It shortens the claim period for the ERTC to January 31, 2024, and amplifies penalties for incorrect or fraudulent claims.
International Relations: U.S. and Taiwan
In a significant move, the bill extends tax treaty-like benefits to Taiwan to avoid double taxation, which may impact businesses with operations or interests in Taiwan.
Disaster Relief: Continued Assistance
Disaster relief provisions from the Taxpayer Certainty and Disaster Tax Relief Act of 2020 are extended. This includes benefits for those affected by federally declared disasters between January 1, 2020, and 60 days post-enactment of the new bill.
Simplifying Tax Reporting:
The reporting threshold for Form 1099-NEC and 1099-MISC increases from $600 to $1,000 for payments made after December 31, 2023, easing the administrative load for small businesses.
Promoting Affordable Housing:
The bill boosts the 9% low-income housing tax credit ceiling by 12.5% for calendar years 2023 through 2025 and reduces the bond financing threshold to 30% for projects financed by bonds issued before 2026.
This Act presents a mosaic of opportunities and considerations. Small business owners and professionals must promptly assess how these changes impact their operations and tax strategies. As the provisions have retroactive effects, it’s crucial to consult with tax professionals to maximize benefits and navigate the complexities of the new law.
Treasury Circular 230 Disclosure
Unless expressly stated otherwise, any federal tax advice contained in this communication is not intended or written to be used, and cannot be used or relied upon, for the purpose of avoiding penalties under the Internal Revenue Code, or for promoting, marketing, or recommending any transaction or matter addressed herein.