Many changes regarding the tax code will be occurring over the next couple of years. Along with a massive end-of-year spending bill, lawmakers also modified the treatment of retirement savings. Unfortunately, they didn’t give any tax credits. Therefore, there are four tax breaks that won’t be extended.
The Child Tax Credit
Currently, most parents receive a tax credit of up to $2,000 per year for each child. This became more generous throughout the first half of Biden’s term, which was viewed as successful by most people since it helped end childhood poverty. In fact, when the expanded benefits ended, childhood poverty spiked by 41%, which meant that 3.7 million children were now living in impoverished households. Even with these statistics and vigorous advocacy for the expansion of the tax break, Congress wouldn’t budge.
Numerous Tax Breaks for Companies
While families are obviously being affected, companies will feel the largest impact. This is because there are numerous tax credits that’ll be ending soon. These include:
- There are no more tax breaks being given to companies to help with research and development. Many companies felt that ending this tax credit wouldn’t only stifle job growth, but it’d also put the United States at a competitive disadvantage with China. While Senators from both parties seemed to agree, voting 90-5, this still didn’t make it into the new bill.
- Corporate resources (e.g., a new, bigger oven for a bakery) will be treated less generously. Previously the cost of these resources could be immediately deducted from the company’s tax filings. This is what was known as “bonus depreciation” – something companies loved because they preferred a tax break now instead of waiting until later. Experts also liked it because they believed that the economy benefited when companies were encouraged to invest in their businesses. However, opponents argued that this was giving corporations money at the government’s expense. So, Congress decided to allow the tax credit to start phasing out in 2023, as originally planned. This means that if there isn’t any legislative action taken this year, this credit will end altogether by 2027, leaving companies to spread out the depreciation over many years.
- Deductions for companies’ interest expenses will end. This was a wonky provision in the 2017 tax law that may have a major impact on businesses. It started in 2022 and set a stricter cap regarding how much of these expenses could be deducted by companies. The companies that are affected may collectively lose billions of dollars. Many of them had believed that this bill’s temporary provisions would be extended, but doing so would be quite costly for the government as companies would profit.
Although most of these things won’t change this year, they could have some impact on the soon-to-be coming 2023 filing deadline. Therefore, many families and businesses are bound to be faced with at least some confusion. To help avoid this confusion and ensure that your taxes are done correctly, contact us at the Weller Legal Group in Clearwater, FL.
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