House tax chief is expected to release a much-anticipated bill(s) that seeks to fix several tax SNAFUs. But will it pass the Senate?
What Went Down:
- House Ways and Means Chairman Jason Smith is expected to release legislation that seeks to correct the Big Three.
- Lawmakers on a House Small Business Subcommittee showed bipartisan support for R&D expensing.
- The House Ways and Means Committee approved several pieces of legislation affecting several issues, from clamping down on Social Security ID theft to extending funding for the Airport and Airway Trust Fund.
- The Senate Finance Committee co-hosted a Roundtable on how to make tax compliance easier for small business owners.
Let’s Get To It:
Tax Bill:
House Ways and Means Chairman Jason Smith (R-Mo.) is expected to release three tax bills that, in part, seeks to fix the Big Three, among other issues.
The Big Three: 1. Allowing for R&D costs to be expensed; 2. Expanding the Section 163(j) interest deduction (from EBIT to EBITDA); 3. Returning Bonus Depreciation to 100%.
Other provisions in the bill are expected to include:
- Increasing the income level requirement for 1099-K reporting to $20,000,
- Upping the standard deduction,
- Providing tax relief to estates,
- Extending 199A.
SALT cap modifications are expected to be in the bill.
The bill under committee discussion is expected to be split into three pieces of legislation. One will focus on individual tax issues. A second on small businesses. And a third is expected to focus on business tax incentives. At some point, it is expected that they will be combined into one bill.
Legislative Outlook: The legislation is expected to pass the House, where Republicans are the majority party. The bill can pass with only Republican support.
Passage in the Senate is unclear. Senate Democratic support will be needed for this bill to pass the Upper Chamber. Many Senate Democrats, who support the Big Three, will withhold their support unless the bill expands the Child Tax Credit.
Eide Bailly’s coverage of this development is here.
R&D Expensing:
Lawmakers from both political parties during a June 6th House Small Business Subcommittee hearing urged Congress to allow R&D outlays to be expensed. Current law requires domestic R&D costs to be amortized over five years.
House Ways and Means Chairman Smith released legislation that would allow for R&D expensing, expand the 163(j)-interest deduction, and return Bonus Depreciation to 100%.
Democrats support R&D expensing, but their support for that measure hinges on whether an expansion to the Child Tax Credit is also included in the bill.
Inclusion of the child credit is not important for passage in the House. Republicans are the majority party. In the Senate, inclusion of the child credit could determine whether the bill is approved. If approved, President Biden would be pressured to sign it into law.
Legislative Outlook: It is unclear if R&D expensing will become law (see above section).
Eide Bailly’s coverage of this hearing is here.
Bills Approved:
The tax-writing House Ways and Means Committee on June 7th approved numerous pieces of legislation that, if enacted, would affect a myriad of subjects.
Committee lawmakers approved legislation that seeks to protect seniors and children from identity theft stemming from their Social Security account being breached. They also approved legislation that extends fuel and other taxes that fund the Airport and Airways Trust Fund. Several health-care related bills were also approved.
Legislative Outlook: One political party supported these bills more than the other political party. These bills will likely pass the House, but given the partisan support for some of these bills, most of them are unlikely to pass the Senate and become law.
Eide Bailly’s coverage of this event is here.
Roundtable:
Senators who sit on two of the chamber’s committees hosted a roundtable on June 7th that focused on reducing complexity in the tax code for small businesses.
Despite complexity being a problem, roundtable participants who weren’t lawmakers seemed more interested in lowering their tax bill than reducing compliance burdens, according to their written testimony.
Alicia Chapman, owner and CEO of Willamette Technical Fabricators, a metal manufacturer, on R&D expensing:
‘Willamette Technical Fabricators has conducted substantial research and development throughout our startup years,’ she said, adding ‘We are already struggling with the updated requirement for the first time in 70 years to amortize these investments over time, instead of being able to immediately deduct our R&D expenses. This is a stark contrast to the 200% R&D deduction provided to our Chinese competitors by their own government.’
Stephanie Camarillo, owner of the cleaning business Molly Maid of Boise and the Treasure Valley, on extending Section 199A:
‘Tax relief saves jobs and elevates working families,’ she said, adding, ‘The Small Business Deduction, also known as Section 199A, has made a difference to our business.’
Michael Norris, CEO and President of the software company Warrant Technologies LLC, on both provisions:
‘If these tax [positions] persist, the impact on small businesses, like Warrant Technologies, could be devastating,’ Norris said, adding that Congress should fix these tax issues this year.
‘Fixing the tax burdens that start this year is in the interest of every small business, our Nation’s economic growth, and the ability of our small business to continue thrive and pursue research and development efforts,’ he said.
Legislative Outlook: As written above, advancing these tax provisions has bipartisan support, but the political will might be lacking to make it happen.
Eide Bailly’s coverage of this event is here.
Pardon if this recap missed a monumental moment, but we can recap it next time!
Adios amigos!
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