RTS #036 Tax laws might change, you shouldn’t
The tax code is written in pencil. Congress can change it anytime they like (and without any concern for what it does to CPAs and the tax filing season). You may have seen that a proposed tax bill (The Tax Relief for American Families and Workers Act of 2024) recently passed in the House of Representatives and is headed to the Senate. This proposed legislation, as currently written, would impact the 2023 tax year even though the calendar has already turned to 2024, and some people have already filed their 2023 tax return.
Let’s cover dealing with pending tax law changes from a high level, and then I’ll touch on what this specific legislation could cover. The biggest reason to stay aware of pending tax law changes is so you can answer client questions when they inevitably come up. There are headlines all over the internet and social media any time the rules might change so it’s good to be in front of it in your client communications. But if the question is, “Should my approach to my tax return filing change because of the pending rules”…my answer is no.
I already encourage taxpayers and advisors both to NOT rush to the finish line on preparing tax returns. That doesn’t mean waiting to gather documents or share them with your tax preparer, or even draft a return, but my preference is to get near the finish line and then take advantage of the time we are given. That’s my approach even in years where there are no pending changes, so there is no need to adjust when Congress is trying to keep us on our toes. For some clients who might be impacted by the potentially changes, we are going to get right to the finish and then pause, just like we would any other year.
As I’m writing this, there are two primary areas of the proposed legislation that has passed the House of Representatives that might impact taxpayers I work with:
- Child Tax Credit Expansion: this proposed change would only be applicable for taxpayers claiming dependents eligible for the child tax credit and, as currently written, only expands the refundable portion of the credit (the portion of the credit that will be paid out even if it exceeds the taxpayer’s total tax liability). This will primarily benefit low-income taxpayers if passed. For taxpayers who don’t have dependents or regularly have a tax bill (line 24 of the tax return) of more than a few thousand dollars, this change is unlikely to have an impact.
- Bonus Depreciation Increase: the proposed legislation increase bonus depreciation back to 100% of qualifying assets. This is most relevant for business owners who are purchasing capital assets (assets with a useful life of more than 1 year that would normally be required to be depreciated for tax purposes). This has the potential to allow business owners to accelerate the timing of deductions. For taxpayers who are not business owners or are not purchasing capital assets, this change is unlikely to have an impact.
And since tax changes seem to be so fun for Congress, there is separate proposed legislation that could change the SALT limitation which could potentially be beneficial for taxpayers in states with high incomes.
My crystal is just as broken as it was last year so I’m going to keep making the best decisions and recommendations I can based on the rules currently in place and the information that we currently have.
What can you do about it?
Proactive and open communication. If you have clients you know could be impacted by this, reach out. Don’t speculate about what the final rules will be, remind them that the tax code is written in pencil and that until the final rules are written there is no action they need to take other than getting ready for their tax filing just like they do every year. For your clients that aren’t likely to be impacted, “what to do with proposed tax law changes” might be a great topic to include in your next client newsletter.
Happy Tax Planning!