Exciting news for both parents and business owners! Legislation called the “Tax Relief for American Families and Workers Act of 2024” has passed the House and is now making its way through the Senate. While its future remains uncertain, the proposal holds the potential for significant tax breaks in several key areas. Let’s delve deeper into the details and explore how these changes could benefit you.
Enhanced Support for Families: Potential Changes to the Child Tax Credit
The proposed legislation aims to increase the accessibility and value of the child tax credit, a crucial financial resource for many families. Here’s what could change:
- Fairer Calculation: The formula used to determine the refundable portion of the credit would consider the number of children a parent has, providing fairer support based on family size. This change would be effective for tax years 2023, 2024, and 2025.
- Increased Limits: The overall limit for the refundable portion of the credit would see a gradual increase: $1,800 in 2023, $1,900 in 2024, and $2,000 in 2025.
- Inflation Adjustment: The maximum credit amount of $2,000 would be adjusted for inflation in 2024 and 2025, ensuring its purchasing power remains constant.
- Flexibility for Fluctuating Income: In 2024 and 2025, parents with lower income in the current year compared to the previous year could use their prior year’s earned income to calculate the maximum credit amount. This offers greater flexibility for families with fluctuating income streams.
Boosting Businesses: Accelerated Expense Deductions
The legislation also proposes several changes to business tax provisions, primarily aimed at accelerating expense deductions. Here’s how businesses could benefit:
- Faster Research and Development Deductions: Currently, research and development expenses must be deducted over five years. The act proposes full deduction in the year the expense is incurred, applicable to expenditures between 2022 and 2026.
- Enhanced Business Interest Deduction: The legislation outlines adjustments to the calculation of the business interest deduction limit. This could potentially provide tax relief for businesses, particularly in 2024, 2025, and 2026.
- Extended Bonus Depreciation: The currently decreasing bonus depreciation (80% in 2023 and 60% in 2024) would be reinstated to 100% for qualified property placed in service between 2023 and 2026. This incentivizes businesses to invest in equipment and other assets.
- Increased Section 179 Expensing: The maximum amount businesses can expense under Section 179 would increase to $1,290,000 in 2024, with an inflation adjustment in 2025. This allows businesses to deduct the full cost of qualifying property in the year it’s purchased, improving cash flow.
Uncertainties and Potential Impact
While these proposed changes hold promise, it’s important to remember that the legislation’s fate in the Senate remains uncertain. Additionally, the specific impact on individual families and businesses will vary depending on their unique circumstances. Consulting with a tax professional to understand how these potential changes could impact you is always recommended.
It’s also crucial to note that tax laws are complex and can change frequently. Staying informed about the latest developments and seeking professional guidance can help you navigate the complexities of tax filing and maximize your potential benefits.
