January 17, 2024

On Tuesday, January 16th, Congress introduced a bipartisan tax framework that would modify and extend a handful of tax provisions that would significantly impact restaurants. Below are some key highlights of what is included in the proposed framework and what needs to happen in order to see the proposition become legislation.

What’s Included

  • Employee Retention Tax Credit (ERTC) – New ERTC claims will be barred after January 31, 2024. Previously, taxpayers had until April 15, 2024, to apply for 2020 credits and April 15, 2025, for 2021 credits. Due to this, GBQ strongly recommends submitting any valid ERTC claims as soon as possible.
    • Additionally, the statute of limitations related to these claims may be extended to six years rather than the usual three years.
  • Depreciation
    • Bonus – extends 100% bonus depreciation for property with a useful life of 20 years or less that has been placed in service after December 31, 2022, and before January 1, 2026. Any property placed in service after December 31, 2025, and before January 1, 2027, would still be eligible for the 20% bonus depreciation.
    • Section 179 – Increases the maximum amount of qualified property a taxpayer can expense under Internal Revenue Code Section 179 to $1.29 million, reduced by the amount by which the cost of property exceeds $3.22 million, which is placed in service after December 31, 2023.
  • Research & Development Expenses – allows a deduction for domestic research and development costs for tax years beginning after December 31, 2021, and before January 1, 2026. Any domestic research and development costs incurred after December 31, 2025, would still have to be capitalized and amortized over five years.  There has not been any change in the treatment of foreign research and development costs, which must be capitalized and amortized over 15 years.
  • Business Interest Limitation – for tax years beginning after December 31, 2023, and before January 1, 2026, adjusted taxable income (ATI) would be computed using EBITDA (i.e., earnings before interest, taxes, depreciation and amortization). Afterward, ATI would be calculated based on EBIT.  There will be an election to apply computing ATI based on EBITDA for years ending after December 31, 2021.

Next Steps

Even though there is bipartisan support for these changes, it is unclear whether this framework will gain support from the full House and Senate.  The House and Senate are currently addressing legislation to fund the government and avoid a shutdown.  Passage of this legislation is uncertain at this point, but GBQ will continue to monitor developments.

 

 

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Tags: Tax