Written by: Jake Quinn & Zachary D. Miller
In a previous insight, we updated you on the guidance from the IRS related to R&D expense rules from the Tax Cuts and Jobs Act of 2017, which changed the way businesses could treat specified research and experimental expenditures (SRE) under Section 174. Under the current law, businesses can no longer take immediate deductions for these expenses and instead, must capitalize and amortize them, spreading the benefit over 5 or 15 years.
On January 16, 2024, Congressional tax writers released the initial framework for H.R. 7024, The Tax Relief for American Families and Workers Act of 2024. On January 31st, the House passed this bill with a vote of 357-70 and it now moves to the Senate with bipartisan support. One key component of the act is that it would delay the TCJA provision related to section 174 and restore the immediate expensing of U.S.-based R&D costs through 2025. The bill also offers a retroactive benefit for the 2022 tax year. However, these changes do not impact foreign R&D costs.
Other relevant tax changes in the proposed bill include the extension of 100% bonus depreciation and less stringent limitations on interest expense for businesses, and an expanded Child Tax Credit for qualified individuals. These costs to the government would be offset by the termination of the ERTC program. While this is optimistic news for many taxpayers, the bill still has several hurdles to clear before it can be signed into law.
We will continue to monitor the situation closely and update you on any further developments. In the meantime, please reach out to a member of Wolf’s Tax team with any questions or insight on how this bill could impact you.
