|
What Might We See?
The July 4th deadline for passage of the Big Beautiful Bill (BBB) that the administration hoped for doesn’t seem realistic. Due to the significant differences between the House and Senate versions, an easy compromise seems unlikely. However, we know that sooner or later, some semblance of it will survive the reconciliation process and pass through both houses, and unless there are any deal-breakers, which is unlikely, the President will sign it.
Although all the attention thus far has been on the proposed changes to Medicaid and the recommended work requirements, as well as the reduction or elimination of electric vehicle tax credits and other clean energy tax credits, there are several tax measures that entrepreneurs and small businesses should be tracking, especially HR departments.
Boosting R&D Expenses
Currently, businesses can start writing off their domestic R&D expenses over five years, though this time frame is extended up to 15 years for any research done internationally.
In the Senate version of the BBB, businesses would be allowed to write off their R&D expenses immediately without the need to amortize them over a 5-year period.
Extending Bonus Depreciation
The current law allowing companies to deduct most costs of the purchase of new machinery and equipment the same year it is bought is scheduled to end in 2027. The Senate version would make this bonus depreciation permanent and expand the first-year deduction to 100 percent for equipment purchased after January 19, 2025. The House version caps bonus depreciation after 2029
Pass-Through Deductions
As explained in a recent Inc. article, the Tax Cuts and Jobs Act of 2017 … ”allowed companies to deduct up to 20 percent of qualified business income, which can include everything from employee wages to rent on a brick-and-mortar space. That provision was set to expire at the end of this year, though the Senate proposes to make the perk permanent. Notably, it fails to increase the deduction rate to 23 percent, as the House measure does.”
Section 179 Expensing
This tax code section allows companies to expense specific business property, such as office and tech equipment, heavy machinery, and vehicles used for business. Last year, businesses could expense roughly $1 million thanks to the provision, so long as equipment costs surpassed about $3 million. The Senate proposes to adjust that figure to $2.5 million, so long as equipment costs are more than $4 million.
Paid Family Medical and Leave Credit
As explained by Melissa Angell, Policy Correspondent for Inc, “The paid family and medical leave credit, which incentivizes companies to offer their workers paid time off for specific family or medical reasons, currently extends a tax perk of up to 25 percent if a business pays a worker’s full wages. The Senate wants to make the credit permanent, lower the monthly worker requirement from one-year to six-months for eligibility, and expand it to part-time workers as well.
.
No Tax on Tips
This was a popular talking point for President Trump during the recent campaign.
Writing in USA Today, Medora Lee explains, “For tips, the Senate offers a maximum $25,000 deduction for both overtime pay and tips, but it would begin to phase out for single filers earning, with a modified adjusted gross income (MAGI), $150,000, and couples over $300,000. It would reduce the deduction by $100 for every $1,000 of income over those thresholds. For a single filer, the deduction is completely phased out if income is $250,000 over the MAGI threshold.
The House version didn’t have a cap or a phase-out. Instead, it excluded highly compensated employees who make at least $160,000 in 2025.”
“For both no tax on tips and no tax on overtime, the House version is more beneficial to the average taxpayer as there are no caps on the deduction,” said Richard Pon, a certified public accountant in San Francisco.
Overtime Tax Breaks
Summary of differences
|
