Congress continues to discuss a tax package, including a number of provisions pertinent to small business.
Over the weekend, a bipartisan group of House and Senate negotiators hammered out a deal on a major $78b tax package.
A number of key priorities which NSBA has fought for on Capitol Hill are addressed in the draft deal, most notably the issue of immediate R&D expensing, with domestic Section 174 expenses set to be retroactively deductible beginning with tax year 2022. While the change is not permanent in the new legislation, it would be secured through the 2025 tax year, amounting to a four-year extension of this critical incentive. We are pleased to see lawmakers take this first step, and while this is an important victory for America’s high-innovation small businesses, NSBA will continue to fight for permanency.
Other Key Provisions:
Congressional leaders additionally included an increase in Section 179 deductions, raising the maximum allowable deduction from $1.16m to $1.29m, allowing an additional $130,000 in possible deductions. This is paired with a corresponding $330,000 increase in the total equipment cap from $2.89m to 3.22m. Importantly: both provisions are set to increase with inflation beginning in 2025.
Bonus depreciation also made the cut: under the proposed deal bonus depreciation (reduced to 80% for tax year 2023 and 60% for tax year 2024) will retroactively restored to 100%, beginning in tax year 2023 and ending at the close of 2025.
For employers who utilize independent contractors, the bill also raises the threshold for 1099 submission from its current $600 level to $1,000. This is an important reminder as well that recent Department of Labor rule changes regarding the classification of independent contractors go into effect on March 11, 2024.
All of these changes were paired with increases in the Child Tax Credit (also known as the CTC) that Democrats preconditioned negotiations upon, alongside disaster relief measures and an expansion of the Low Income Housing Tax Credit. Despite the broad, bipartisan appeal of the compromise legislation, as well as the agreement between House Ways and Means Chairman Jason Smith (R-Mo.) and Senate Finance Committee Chairman Ron Wyden (D-Ore.) the deal still faces obstacles in both Chambers. Minority-party members of both relevant committees have expressed their displeasure with elements of the deal, and look to be angling to secure additional concessions, both believing their side holds the leverage in protracted negotiations. Moreover, legislators face significant timing challenges, with initial hopes that any deal might become law before the January 29th start of IRS tax season looking increasingly remote.
NSBA, along with our partners, will continue to advocate for passage of this deal, and keep you apprised of any updates as the bill progresses.