Keeping straight all the developments in tax policies and requirements can be, well, taxing. Two tax experts recently shared with CFO Brew the tax issues on their minds and what finance leaders should be paying attention to in the second half of 2024 (and beyond).
First and foremost is the expiration of provisions of the 2017 Tax Cuts and Jobs Act (TCJA), which are set to expire at the end of 2025 unless Congress acts to extend them.
What lawmakers decide to do about the TCJA is beyond the CFO’s control. However, there are more immediate TCJA benefits to think about, according to Kevin Gehrmann, tax partner at Wiss.
Markdown. One is the declining bonus depreciation on fixed assets. The bonus depreciation rate this year is 60%, but will fall to 40% next year. If an organization is looking to purchase some new fixed assets, such as buildings or machinery, it’s probably better to do that by December, Gehrmann said.
“You’ll get the same amount of tax depreciation over the life [of the asset], but if you can kind of accelerate that in 2024, you may save on some federal and state tax, which I think every CFO would love to do,” he told CFO Brew.
R&D. Another TCJA provision that Gehrmann said he discusses with clients is Section 174, which requires research and development costs be capitalized and amortized. Costs incurred in the US are amortized over five years, and international costs are amortized over 15, Gehrmann noted.
“Loss companies that do a ton of R&D…historically, they’ve had a ton of losses and carried those forward,” Gehrmann said. “And now with this 174 rule, some of those loss companies are even getting brought into taxable income, and now owe tax as a result of this.”
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There are also tax consequences of the Inflation Reduction Act, namely the corporate alternative minimum tax (CAMT) that went into effect in 2023, Robert Lickwar, partner at UHY, noted.
According to the IRS, the CAMT “imposes a 15% minimum tax on the adjusted financial statement income of large corporations,” specifically those “with average annual financial statement income exceeding $1 billion.” However, the threshold “becomes significantly less” for companies with foreign operations—perhaps as low as $100 million, Lickwar said.
The regulations “are still a work in process,” and there are many adjustments to consider when getting from taxable income to financial statement income to consider, such as tax depreciation and tax retirement plan rules, Lickwar said.
There’s also plenty to think about on the international front. Lickwar said he’s paying close attention to the Organisation for Economic Co-operation and Development’s 15% global minimum tax, of which more than 140 countries have joined.
“I can only imagine, in my wildest dreams, the country by country reporting—which has actually been here for a couple of years—about all of the income being sourced, the market based approach, etc.,” Lickwar told CFO Brew. He added that executives of impacted companies need to discuss how they’re going to handle this reporting, “which probably is going to be a lot of work.”