Bipartisan Tax Plan Provides Key Tax Breaks
On January 16th, lawmakers in the House and Senate unveiled a long-sought tax bill (the “Act”) that renews certain business tax breaks and includes an expansion of the Child Care Tax Credit.
In general, the Act provides three key tax breaks area businesses have been pursuing:
- Immediate deductions for domestic research and development costs;
- Extension of the 100% bonus depreciation for qualified property; and
- Extension of the allowance for amortization, depreciation, or depletion when calculating business interest.
Many of the provisions are retroactive to 2023 and are extended temporarily through 2025.
In addition, the Low-Income Housing Tax Credit provision would restore a 12.5% increase to the amount of credit states can allocate that have previously expired. Companies operating in both Taiwan and the United States will get relief under a bilateral tax treaty. The Act raises a tax reporting requirement for businesses sending forms to independent contractors from $600 to $1,000 and then adjusts it for inflation after 2024. The Act also would increase the amount of investment a business can immediately deduct instead of depreciate over time from $1 million to $1.29 million.
Importantly for California taxpayers, the existing $10,000 limit on the deduction of state and local taxes would remain in place.
Restoring the 100% bonus depreciation on qualified property is clearly an important provision. Bonus depreciation had been limited to 80% of qualified costs last year and was scheduled to be reduced to 60% this year. Details are still emerging, but House and Senate tax writers are optimistic they can reach a broad agreement by the end of the month.