January 31, 2024

Tax Filing Season Has Begun BUT Should You Wait to File This Year?

Even though tax filing season opened on January 29th, we might advise you to delay the filing of your business and/or personal tax returns until the dust settles.

Why? There is a bipartisan deal currently being considered in Congress (named The Tax Relief for American Families and Workers Act of 2024) that could retroactively reduce your 2023 taxes. So, if we’re asking you to wait to file, it’s likely good news!

For Businesses:

  • R&D Expenses – If you have expenses related to U.S.-based Research & Development (R&D), you are currently required to spread out the deduction over 5 years, with only a half-year’s deduction in the year of the expense. The proposed legislation would push back this mandate to tax year 2026, allowing you to deductthe full amount of the R&D expenses that you incurred in 2023 (as well as 2024 & 2025)!
  • What this could mean for your 2023 taxes:
    • You can deduct those R&D expenses that you’re using for the R&D tax credit (net of the credit, of course).
  • 100% Bonus Depreciation– The 2023 tax year was set to be the first year of a phased-in reduction of the percentage of the cost of qualifying property (such as machinery, equipment, vehicles, etc.) eligible for Bonus Depreciation. In lieu of this legislation, taxpayers would only be able to take 80% Bonus Depreciation in 2023, 60% in 2024, and so forth. Instead, if this deal becomes law, Bonus Depreciation will be restored to 100% through tax year 2025.
  • What this could mean for your 2023 taxes:
    • You can deduct 100% of the cost of qualifying property or depreciate it over the useful life, depending on what’s more advantageous for your situation.

For Individuals:

(with dependent children)

Expanded access to the child tax credit – The Child Tax Credit (CTC) currently allows for a maximum $2,000 tax credit, of which only a maximum of $1,600 is refundable (meaning you lose the difference if it cannot be used against that year’s taxes). The credit also currently “penalizes” families with multiple children because the maximum is based solely on earned income and doesn’t account for the number of qualifying children. If passed, the new law would:

  • Increase the maximum refundable portion of the credit to $1,800 in 2023, $1,900 in 2024, and $2,000 in 2025.
  • Increase the maximum CTC each year to account for inflation starting in 2024.
  • Change the way the maximum CTC is calculated to factor in the number of qualifying children in the calculation (generally increasing the credit). Additionally, for tax years 2024 and 2025, taxpayers can calculate their CTC based on the previous year’s earned income, providing flexibility when your income fluctuates.
  • What this could mean for your 2023 taxes:
    • A larger AND more refundable Child Tax Credit

While there are several more nuanced provisions that could affect your tax bill, the aforementioned are the most broadly applicable provisions in the proposed legislation. 

We will continue to monitor this legislation as it evolves to ensure you’re in the driver’s seat when it comes to filing as advantageously as possible. Also, if you are interested in some additional reading, you can check out this article here.

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