US House Passes Tax Legislation: 'Full Expensing' and Strategic Measures Impacting Businesses

The Tax Relief for American Families and Workers Act of 2024, recently passed by the US House of Representatives, unfolds a comprehensive set of tax provisions with significant implications for business owners. A pivotal aspect of this legislation is the introduction of 'full expensing,' a measure that grants businesses the immediate deduction of expenses related to their US-based research and development (R&D) investments, diverging from the conventional five-year deduction period.

The proposed law goes beyond R&D investments, reinstating full and immediate expensing for a broader spectrum, encompassing investments in machinery, equipment, and vehicles. Additionally, it addresses a diplomatic and economic concern by eliminating double taxation for businesses with cross-border interests between the United States and Taiwan, thus influencing the geopolitical dynamics of the US-China relationship.

In a broader context, the legislation extends the scope of interest deductions, allowing for the computation of alternative taxable income without factoring in any deduction allowable for earnings before interest, taxes, depreciation, and amortization (EBITDA). This adjustment is applicable for tax years beginning after December 31, 2023, and before January 1, 2026.

While the proposed law managed to secure bipartisan support in the House, its trajectory remains uncertain as it advances to the Senate, where discussions and potential modifications are expected. The tax package, accompanied by a $78 billion price tag, garnered 357 supporters in the House, but faced opposition from 70 representatives.

The House Ways and Means Committee projects substantial benefits tied to the legislation, including forecasts of over $70 billion in new R&D investments, the creation of 867,000 jobs resulting from alterations in interest deductibility, and a notable $400 billion surge in overall investment due to the implementation of 100% immediate expensing.

As the legislative process unfolds, the proposed tax measures will likely undergo scrutiny and potential amendments in the Senate. Notably, the US aligns with global trends, with parallels observed in the United Kingdom, where Chancellor Jeremy Hunt made the full expensing regime permanent in November. This move received widespread endorsement from tax experts and business groups. The UK Labour Party shadow chancellor, Rachel Reeves, has indicated a commitment to maintaining this regime if her party assumes governance, signaling a continuity in tax policies across borders.

By fLEXI tEAM