Proposed Tax Legislation for 2023?

According to govtrack.us, there have been over 350 tax-related bills introduced in Congress so far during the 118th Congress (2023-2024).  Most bills will not make it out of the respective chamber’s committee for debate on the House or Senate floors.      

A few bills that have been in the news recently that are of interest to many taxpayers include the following (and have been collectively referred to as the American Families and Jobs Act):

• Tax Cuts for Working Families Act (H.R. 3936)
  • Renames the standard deduction the Guaranteed Deduction.
  • Provides for a new “Guaranteed Deduction Bonus for 2024 and 2025 for taxpayers making less than $400,000 ($200,000 single and $300,000 for head of household).  The bonus deduction would be $4,000 for joint return and surviving spouse, $3,000 for head of household, and $2,000 for single taxpayers.
• Small Business Jobs Act (H.R. 3937)
  • Increases the threshold requirements for information reporting (generally, form 1099-MISC and 1099-NEC) with respect to certain payees to $5,000 (up from $600) with a similar increase for when backup withholding is required beginning for payments made after 12/31/2023.
  • Restores the reporting rule for third-party network transactions retroactive to years after 12/31/2021.  Reverts the current $600 threshold back to $20,000.
  • Modifies the exclusion for gain from §1202 qualified small business stock.  The proposal stratifies the amount of gain that can be deferred to 50% for shares held at least three years, 75% for shares held at least four years, and 100% for shares held at least five years.  Possibly more importantly, the §1202 rules would also apply to stock of “S” corporations, and not just “C” corporations as under current law.  The cost of this exclusion may be the loss of suspended passive activity losses from the complete disposition of an activity.  The new rules would generally apply to stock acquired after the date of enactment (so current S corporation owners will not benefit from this provision).
  • Increases Section 179 Expense in limitations on expensing of depreciable business assets beginning in 2024 to $2,500,000 compared to $1,160,000 for 2023 and phase-out threshold to $4,000,000 compared to $2,280,000 for 2023.  
  • Establishes new set of special rules (adds new §1400Z-3) for capital gains invested in “Rural Opportunity Zones” similar to the Qualified Opportunity Zone rules established by 2017’s Tax Cuts and Jobs Act.  Provides for both deferral of current gains and permanent exclusion of future gains.
  • Adds new detailed reporting requirements (adds new §6039K) for qualified opportunity funds and qualified rural opportunity funds.
• Build It in America Act (H.R. 3938)
  • Combines the temporary deferral of three revenue-raising business provisions from the Tax Cuts and Jobs Act with the repeal of certain key items from the Inflation Reduction Act of 2022.
  • Repeals or modifies a number Inflation Reduction Act credits for the period after June 9, 2023.  
  • Repeals clean electricity production credit.
  • Repeals clean electricity investment credit.
  • Modifies clean vehicle credit.
  • Repeals credit for previously owned clean vehicles.
  • Repeals credit for qualified commercial clean vehicles
  • Research and Development Section 174 – Essentially, temporarily suspends the required capitalization and amortization of research and development costs through lengthy legislative language and returns the rules to pre-2022 deductibility.  
  • Business Interest Deduction Limitation Section 163(j) – Temporarily extends the limitation on interest using EBITDA to years beginning before 1/1/2026 to tax years after 12/31/2022.  An election could be made to apply the EBITDA rule to 2022 tax years (though this may require an amended return in some instances).  
  • Bonus Depreciation Section 168(k) – Extends 100% bonus depreciation through 2026.  Bonus would fall to 20% for 2027 and 2028.   

A couple of other bills of interest include:

• Tax Deadline Simplification Act (H.R. 3708)  
  This bill was introduced May 25 in the House by representatives Debbie Lesko, Republican of Arizona, and Brad Schneider, Democrat of Illinois. It would establish that estimated tax installments for individuals, businesses, estates and trusts would be due 15 days after the end of each calendar quarter, meaning the deadlines would be the 15th day of the months of January, April, July (moving from June 15), and October (moving from September).  This bill is supported by the AICPA and National Association of Tax Professionals. 

• Working Families Tax Relief Act (No assigned number as of date of article) 
  A bill supported by many Democratic senators would make the 2021 expansions of the child tax credit and the earned income tax credit permanent. The proposed bill:

  • Increases the Child Tax Credit (CTC) to $3,000 for children aged 6-17 and $3,600 for children ranging from 0-5 and makes the credit fully refundable.

  • Delivers the CTC monthly, providing a reliable source of financial stability, so families can better keep up with the cost of living.

  • Nearly triples the EITC for workers without children and makes the credit available for people starting at age 19 and eliminates the maximum age.

It seems unlikely, given the divided nature of both the House and Senate, that these bills will pass in their current form.  More likely, the provisions contained in the bills will be bargaining chips in any final tax legislation enacted before year-end. 

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