A major tax overhaul is set to become law after the U.S. House of Representatives narrowly passed a sweeping tax bill on July 3.
The move will result in a raft of changes to the tax credits business owners know and rely on — as well as some other changes that could affect employers.
Here’s a look at 15 key changes businesses need to know from the law:
- Business property credit: Under current law, the so-called “bonus depreciation” is available through 2026, and allows for property (with a number of specific tweaks for aircraft and other properties) purchased between 2017 and 2023 to be eligible to be 100% depreciated on taxes — which is phased down by 20% per calendar year for property placed into service afterwards. The tax credit will make bonus depreciation permanent and allow 100% of the property acquired to be depreciated on taxes.
- Research-and-development credit: Currently businesses must amortize domestic research spending over a five-year period — the result of the 2017 Tax Cuts and Jobs Act passed during Trump’s first term. Businesses previously could deduct all domestic research and experimental costs incurred in the tax year, something the legislation restores. In addition, the legislation allows small businesses with $31 million in gross receipts or less to apply to make retroactive deductions for tax years beginning in 2022 and before 2025, and to accelerate any existing deductions.
- Business interest tax credit: Right now, tax deductions for business interest expenses are limited to either the sum of the businesses interest income for the year or 30% of the adjusted taxable income year and its interest paid or accrued on the finance of vehicles. The new law increases the cap on business interest expenses for 2025 and after by making “adjusted taxable income” calculated without taking into account depreciation, amortization or depletion.
- Increased expensing for depreciable business assets: Businesses may currently expense up to $1 million per year of the cost of a qualifying property rather than recover the amounts through tax depreciation deductions, with amounts tied to inflation and increasing every year. The new legislation increases the amount a business can expense to $2.5 million in a taxable year, reduced by the amount by which the cost of the qualifying property exceeds $4 million, which is then tied to inflation beginning after 2025.
Read more at the Milwaukee Business Journal.