Research and Experimental (R&E) Investments:
Under the proposed changes, businesses of all sizes would be able to immediately deduct the full cost of their domestic U.S. R&E expenditures rather than amortizing the expenditures over a five-year period. This change is designed to incentivize businesses to invest in innovative projects that drive economic growth.
The law currently mandates domestic U.S. R&E expenditures incurred after December 31, 2021, to be capitalized and amortized over a five-year period. However, the proposed provision would delay the implementation of this requirement until taxable years beginning after December 31, 2025. This delay would enable taxpayers to immediately deduct domestic U.S. R&E expenditures incurred after December 31, 2021, and before January 1, 2026. It appears foreign R&E expenditures will still be required to be capitalized and amortized over a 15-year period.
Cost Segregation:
Bonus Depreciation and Capital Expenditures
Qualified property acquired and placed into service after September 27, 2017, and before January 1, 2023 (2024 for longer production period property and certain aircraft) has already been eligible for 100% bonus depreciation. A scheduled phase-down of bonus depreciation to 80% for assets acquired and placed into service in 2023, 60% in 2024, and so on was part of the Tax Cuts and Jobs Act. The Act proposes to extend that phase-down start date from January 1, 2023, to January 1, 2027.
Under the proposed changes, businesses of all sizes would be able to continue to fully deduct immediately qualified property placed into service this tax year. This change is designed to incentivize businesses to invest in capital improvements and real estate projects that drive economic growth.
Employee Retention Credit (ERC) Impact:
As part of this proposed bill, Congress plans to terminate the ERC program effectively, barring any additional claims after January 31, 2024. This would be a major change from the current filing deadlines of April 15, 2024, and April 15, 2025, for 2020 and 2021 ERC claims, respectively.
The proposed bill also includes a number of other provisions related to the rampant fraud within the ERC program, including additional penalties for preparers of fraudulent claims and new disclosure requirements for a newly defined category of “COVID-ERTC Promoters.”
Finally, the proposed bill extends the statute for IRS assessments of ERC from five years to six years and also extends the period for taxpayers with disallowed ERC claims to re-claim deductions for wages (related to the wage deduction disallowance associated with ERC claims via amended returns).
This proposed legislation aims to foster a more innovative and competitive business environment in the U.S., benefiting businesses and the economy. KBKG’s goal is to help CPAs, as tax professionals, stay informed of these potential modifications, provide accurate advice to clients, ensure compliance with the evolving tax landscape, and prepare for forthcoming proposed rule changes.
