So, a bunch of you ganged up on me. Claiming that my piece about the Omnibus bill wasn’t complete. (Of course, it wasn’t complete- I only was discussing the changes being made that affect taxes and health care. But, you thought I omitted some tax changes. I didn’t.)
It’s a matter of perspective. You folks were looking to see what rules were changing this year. I was only looking to see what changes the Omnibus bill was going to make that weren’t already in the works.
But, I understand your desire to know the changes, so we’ll discuss them right now. (These changes were written into the original Tax Cut and Jobs Act (TCJA) bill of 2017; I’m sure the GOP thought they’d gain control of the government levers and put back in the sunset provisions [that were created to keep the bill from totally bankrupting the government] without most folks realizing how expensive those provisions really are. Oh, and yes- the Democrats would prefer to collect more money in taxes, especially for these expiring tax breaks.)
Except the Democrats (and a few Republicans) wanted two provisions added into the Omnibus bill. But, there weren’t enough of them to carry the day.
The first provision was to fix our SNAFU immigration system. But, there is no clear common vocabulary to discuss this problem. Many of the GOP don’t want any immigrants to become landed (which is crazy, since we need them to curtail the job backlog that exists that is keeping companies from operating at efficiency and to probably alleviate the increasing salary demands to which companies must accede since there is such a shortage of able-bodied [and capable] employees.)
The other provision is one of the tax provisos that expired this year. The Expanded Child Tax Credit. This provision made a big difference for our children. It reduced hunger and poverty among our population. The second the provision terminated, child poverty jumped by more that 40% (some 3.7 million kids were now living below the poverty line when compared to December 2021, when the provision was active.) But, the GOP stuck to its guns and this provision was not reestablished.
This next provision was one our company has used. The TCJA provided a special R&D tax deduction for those firms effecting development or research. (It still exists, the provision is just MUCH less generous.) The change the law required this year was to require that R&D expenses to be deducted over five (5) years, rather than in the single year of expenditure, as designated in the TCJA. Interestingly, before it was decided to create the Omnibus bill, this provision was budgeted to be reestablished- by a Senatorial vote of 90 to 5. But, by December, it seemed no longer to be a priority and the provision was sunsetted.
And, then there was the special (100%) business depreciation write-off. The one that let all of us (should we so elect) depreciate 100% of the costs of a capital item in a single tax year. Prior to the TCJA, depreciation had to follow the “tax life” of the purchase, with the extra deduction afforded by Section 179 (immediate [but limited in dollar amounts] capital expense deduction, limited by taxable income). The TCJA provided “bonus depreciation”- which basically meant 100% write-off during the year of expenditure. Some folks considered this great for the economy, others recognized it as a giveaway to business (which also let many business taxpayers abscond without paying a penny in income tax for the year). Just so you know- this bonus depreciation is still the law of the land. It’s just that it no longer is 100% write-off; next year’s taxes (2023) will have the maximum bonus drop to an 80% write-off, with an additional 20% drop each year (which means it’s gone by 2027).
This next provision is one that folks like us love- since it’s a little bit complicated and means you need our help garnering the provision. When companies borrow money, they are expected to pay it back- with interest. The interest is considered a deductible item. But, there is a cap on deductible interest that reverts from the 2017 law to a much lower threshold in the 2022 tax year.
Companies that take on debt and then pay interest on that debt can treat those interest payments as a business expense and deduct them on their tax returns. But the 2017 law set a stricter cap, starting in 2022, on just how much of those interest expenses companies can deduct. Deductible interest is limited (now) to 30% of a firm’s adjusted gross income (so long as the firms Gross Receipts exceed $ 25 million.). The remainder of the interest can be carried forward indefinitely, but it does make it much harder to garner a big financial benefit from high interest payments. This was another proviso that the GOP was banking it could extend.
There they are. The provisos of the TCJA that no longer apply now- or, in come cases, as of next year
