Ed Meyette, federal tax consulting services partner with Crowe, explains how a proposed tax bill would benefit U.S. manufacturers by speeding up the depreciation of business expense.

The Tax Relief for American Families and Workers Act of 2024 was introduced by Senate Finance Committee chair Ron Wyden (D-OR) and House Ways and Means chair Jason Smith (R-MO). The $78 billion proposal offers a number of tax benefits for individual taxpayers, but also features several provisions that would benefit U.S. manufacturers.

Three key provisions relate to the timing of business deductions for investments in capital and research, Meyette notes. All of them address expiring or delayed elements of the Tax Cuts and Job Act of 2017 (TCJA).

The first provision extends the ability of companies to deduct research expenditures within a given year. TCJA had required them to spread those deductions over a five-year amortization period. Under Wyden-Smith, they could continue to fully deduct research expenses through 2025.

The second provision relates to interest expense, and the way that taxable business income is calculated. Wyden-Smith would restore depreciation and amortization as part of that formula — factors that were eliminated by TCJA.

The third and perhaps most impactful provision relates to bonus depreciation — the ability to speed up the depreciation of qualifying assets. TCJA had dictated that the amount of allowable depreciation within a tax year would fall from 100% through 2022 to 80% in 2023, and 60% in 2024. Wyden-Smith seeks to retain the 100% level through 2025.

The proposal is meant to incentivize investment in American manufacturing, at a time when many companies are shifting sourcing away from Asia and back to the western hemisphere. Notwithstanding bipartisan support, however, the Wyden-Smith bill faces an uncertain future in a presidential election year, Meyette said. In the alternative, its provisions could be rolled up into a more comprehensive measure — or fall victim to “inertia.”