100% Bonus Depreciation Extended in 2024

In a groundbreaking move, House Ways and Means Committee Chairman Jason Smith (R-Mo.) and Senate Finance Committee Chairman Ron Wyden (D-OR) have unveiled the Tax Relief for American Families and Workers Act of 2024, a comprehensive bipartisan legislation aimed at providing significant tax relief, fostering economic growth, and supporting the financial security of working families.

Key Provisions and Benefits

1. Boosting Business Investments with 100% Bonus Depreciation

The act includes a provision for 100% bonus depreciation and research and development (R&D) expensing, crucial for small and medium-sized businesses. 

In a statement issued by Jeff Bush of The Washington Update, these changes are "a big deal for small and medium-sized businesses," encouraging them to reinvest and stimulate growth.

According to the bill, the extension of 100-percent bonus depreciation impacts qualified property acquired and placed in service after September 27, 2017, and before January 1, 2023 (January 1, 2024, for longer production period property and certain aircraft), along with specified plants planted or grafted during the same period. This provision allows for a phased reduction of the 100-percent allowance by 20 percent per calendar year for qualified property acquired after September 27, 2017, and placed in service after December 31, 2022 (after December 31, 2023, for longer production period property and certain aircraft), as well as for specified plants planted or grafted after December 31, 2022.

Moreover, the provision extends the 100-percent bonus depreciation for qualified property placed in service after December 31, 2022, and before January 1, 2026 (January 1, 2027, for longer production period property and certain aircraft), as well as for specified plants planted or grafted within the same timeframe. It also maintains a 20-percent bonus depreciation for property placed in service after December 31, 2025, and before January 1, 2027 (after December 31, 2026, and before January 1, 2028, for longer production period property and certain aircraft), along with specified plants planted or grafted after December 31, 2025, and before January 1, 2027.

In short, the extension of 100 percent bonus depreciation allows businesses to deduct the entire cost of qualifying assets in the year they are placed in service, rather than depreciating them over several years. This extension provides a significant incentive for businesses to invest in capital assets, as it accelerates the recovery of the costs associated with those assets. 

Typically, bonus depreciation is designed to stimulate economic growth and encourage businesses to make capital investments by providing an immediate and substantial tax benefit. The extension implies that the 100 percent bonus depreciation remains applicable for a specified period, promoting continued investment in eligible assets.

Pro-Tip: How the bonus depreciation will impact the trucking industry

Under existing tax laws, businesses purchasing assets between September 27, 2017, and December 31, 2022, can immediately deduct 100% of the asset's cost in the first year, reducing taxable income significantly. However, starting in 2023, this bonus depreciation decreases by 20% annually. Bonus depreciation will be 0% for property placed in service on January 1, 2027, and later. This presents challenges for businesses seeking to leverage depreciation for tax savings, prompting the need for strategic planning. 

The proposed legislation in 2024 extends the 100% bonus depreciation, providing a lifeline for businesses, especially in the trucking sector. This extension enables businesses to continue enjoying the full benefit of immediate first-year deductions on qualifying property acquisitions, fostering increased investment in modernizing fleets and enhancing operational efficiency.

While the allure of 100% bonus depreciation is significant, businesses, including those in the trucking industry, should carefully evaluate their financial standing and long-term goals before making substantial purchases. Factors such as cash flow, future capital needs, and the economic landscape must be weighed against immediate tax benefits. In essence, the proposed legislation offers a crucial opportunity for the trucking industry to accelerate investments, providing both immediate tax relief and long-term strategic advantages.

2. Empowering Families Through Enhanced Child Tax Credit

The legislation expands the Child Tax Credit, bringing about positive changes for American families. 

“Fifteen million kids from low-income families will be better off as a result of this plan, and given today’s miserable political climate, it’s a big deal to have this opportunity to pass pro-family policy that helps so many kids get ahead, Sen. Wyden said in a statement accompanying the tax framework summary.

Additionally, Erica York, Senior Economist at the Tax Foundation, notes in a statement that the bill “would increase the amount that can be received as a refund and inflation adjust the maximum among other changes to the credit that would all last through 2025." 

The bill will increase the maximum refundable amount per child to $1,800 in the tax year 2023, $1,900 in the tax year 2024, and $2,000 in the tax year 2025. The child tax credit's $2,000 value will be adjusted for inflation in tax years 2024 and 2025, rounded down to the nearest $100.

Taxpayers, in tax years 2024 and 2025, have the option to calculate their maximum child tax credit by utilizing their earned income from the prior taxable year. This choice is available if their current taxable year's earned income is lower than the previous one, allowing for a strategic approach to optimizing tax benefits based on income differentials.

In this regard, families and businesses alike may have to see through this legislation and hold the filing of tax returns as suggested by Freedomtax Accounting.

3. Strengthening Main Street and Community Rebuilding

The bill doesn't just stop at individual benefits; it also focuses on supporting Main Street businesses and communities affected by disasters. The small-business expensing cap is expanded, allowing businesses to immediately write off up to $1.29 million in investments. Moreover, the legislation cuts red tape for small businesses, adjusting reporting thresholds for subcontract labor and providing disaster tax relief.

4. Promoting Innovation and Competitiveness

The Tax Relief for American Families and Workers Act reinstates critical business provisions such as 100% bonus depreciation and R&D expensing for domestic R&D, fostering innovation and sharpening America's economic competitiveness, particularly against China.

Backings and Criticisms

The announcement was met with bipartisan support. Chairman Smith emphasized the bill's positive impact on families, businesses, and competitiveness with China, stating, "This legislation locks in over $600 billion in proven pro-growth, pro-America tax policies with key provisions that support over 21 million jobs."

The bill also has the support of Rep. Mike Kelly (R-PA), the chair of the Ways & Means Subcommittee on Tax.

“This package includes pro-growth tax policies, including the critical research & development expensing provision so American companies can invest and grow here at home. It allows American companies and workers to be more competitive with China. And, it boosts the Republican-created Child Tax Credit, which strengthens and supports families. This deal locks in $600 billion in proven pro-growth, pro-American policies that will give American companies a major boost in the years to come,” Kelly stated. 

Chairman Wyden, emphasizing the benefits for low-income families and innovation, said, "My goal remains to get this passed in time for families and businesses to benefit in this upcoming tax filing season, and I’m going to pull out all the stops to get that done."

Despite the positive aspects of the Tax Relief for American Families and Workers Act, some voices express concerns about the temporary nature of the proposed changes. Erica York of the Tax Foundation noted, "Ideally, lawmakers would be debating how to permanently stabilize the tax code, rather than working to enact last-minute, temporary, and retroactive tax changes."

The Legislative Journey

It's essential to note that the Tax Relief for American Families and Workers Act of 2024 while promising, is currently in draft form. Like any proposed legislation, it must undergo a rigorous process before becoming law. The next steps involve garnering support in both the House and the Senate, where lawmakers will debate, amend, and ultimately vote on the bill.

The legislative journey includes committee reviews, potential amendments, and negotiations, reflecting the dynamic nature of lawmaking. If the bill successfully passes both chambers, it then awaits the President's approval. Only after the President signs the bill does it officially become law, bringing the envisioned tax relief measures into effect.

In the interim, employers should remain vigilant, understanding that the proposed January 31 deadline for certain provisions may or may not be adopted. Moreover, there's the possibility that the program could see an early halt in 2024, ahead of the existing April 15, 2025 deadline. As the legislative process unfolds, businesses and individuals should stay informed about any developments that may impact the implementation of these tax reforms.

The Tax Relief for American Families and Workers Act of 2024 presents a unique opportunity to usher in positive changes for American families, businesses, and communities. While some concerns linger about the longevity of these measures, the bipartisan nature of the agreement suggests a shared commitment to bolstering the economy and supporting the well-being of American citizens. As the legislation navigates through Congress, its potential impact on the upcoming tax filing season remains a focal point for citizens and businesses alike.

The Tax Relief for American Families and Workers Act of 2024 holds immense promise for the trucking industry, particularly with the inclusion of a 100% bonus depreciation provision. This game-changing measure presents a unique opportunity for businesses, including FedEx Linehaul Contractors, to upgrade their fleets and enhance logistical efficiency.

As the legislation progresses, it's a call to action for businesses to leverage this opportunity wisely– FedEx Linehaul contractors can navigate these changes and position themselves for unprecedented success in the evolving landscape of the American trucking industry.