The House GOP tax plan indicates what’s to come if Republicans control Congress and the White House after 2024.
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Now that a debt default has been diverted, Republicans in the House of Representatives are turning toward taxes. They’ve laid down their opening marker. It can pass the House, but not the Senate. GOPers’ decision to pay for the cost of their plan by nixing some key green-energy tax breaks in last year’s Inflation Reduction Act is a nonstarter with Congressional Democrats. Also, the package omits provisions that Democratic lawmakers are passionate about, such as expansions to the child tax credit and earned income tax credit.
House GOP $237B Tax Package Revealed
Nevertheless, don’t count the proposals out. It could jump-start negotiations on a potential year-end tax package. And it’s an indication of what’s to come if Republicans can take control of both the houses of Congress and the presidency after 2024. Many of the plan’s tax breaks are slated to end after 2025, the same time that most of the provisions impacting individuals and estates in the 2017 tax law expired. Let’s delve into some of the main tax breaks in the House Republican plan.
Extra Standard Deduction Amounts
The House GOP package contains hikes to the standard deductions of $4,000 for couples, $2,000 for singles, and $3,000 for household heads for 2024 and 2025. Upper-income individuals wouldn’t get the extra bump.
What is the Bonus Guaranteed Standard Deduction?
Information Reporting Rules
Two changes to information reporting rules are included. Start with 1099-K forms issued by third-party settlement networks, such as PayPal, Square, Venmo, and eBay. The bill would reverse the lower $600 reporting threshold scheduled to take effect starting with 2023 1099-Ks, and bringing back the old rules, in which the forms are sent only to payees with over 200 transactions, who were paid over $20,000. Relaxing the 1099-K reporting rules has bipartisan support, but it’s unlikely that the changes will be repeated in their entirety. The odds are better for some sort of compromise, such as increasing the annual monetary threshold to $5,000 or $10,000.
Second, the threshold for reporting non-employee payments on 1099s would skyrocket from the $600 figure now in place to $5,000 for the 1099-MISC and 1099-NEC forms.
IRS Form 1099-K: When You Might Get One From Venmo, PayPal, Others
Business Tax Savings
Businesses would get lots of tax savings under the House GOP plans. Firms could write off more asset purchases. The proposal would revive 100% first-year bonus depreciation for eligible new and used assets. Currently, the write-off is 80%. Also, the Section 179 spending limit would rise from $1,160,000 to $2.5 million.
Full research & development spending would be restored. Prior to 2022, businesses could fully expense R&D costs in the year incurred. The 2017 tax law changed this for tax years starting after 2021. Firms must now amortize their R&D expenses over five years…15 years for overseas research. The plan would restore the old rules.
There’s a change to interest deductions on business debts of large firms. The 2017 tax law limited many big businesses’ net interest write-offs to 30% of adjusted taxable income. Starting in 2022, depreciation and amortization write-offs are accounted for in adjusted taxable income, but they wouldn’t be under the GOP plan.
Sales of shares in an S corporation would be eligible for up to 100% gain exclusion, provided the stock otherwise meets the rules for “qualified small business stock.”
What’s not in this plan that some House members from high-tax states want: A hike in the $10,000 cap for deducting state and local taxes on Schedule A of the 1040.
This first appeared in The Kiplinger Tax Letter. It helps you navigate the complex world of taxes by keeping you up-to-date on new and pending changes in tax laws, providing tips to lower your business and personal taxes, and forecasting what the White House and Congress might do with taxes. Get a free issue of The Kiplinger Tax Letter or subscribe.