Outlook on tax rates and policy changes

The House passed the Build Back Better Act (BBBA) on Nov. 19, 2021, and it included some significant tax proposals — some of which made it into the IRA. The BBBA stalled in the Senate in December 2021.

The employee retention credit (ERC) has been fraught with challenges since its enactment during a rapid series of COVID-19 relief legislative packages in early 2020. Legislative changes to the ERC in 2020 and 2021, along with varying opinions regarding ERC qualifications, has created confusion for both taxpayers and the IRS.

Please see our ERC page for more information on the credit.

The Inflation Reduction Act (IRA) was signed into law on Aug. 16, 2022. The tax items in the IRA include:

• Taxes impacting very large or publicly traded corporations, such as the book minimum tax and excise tax on corporate stock buybacks.
• Substantial energy-related tax credits and other incentives for individuals and businesses participating in the green energy sector or using energy-efficient property and vehicles.
• Extension of a loss rule (Section 461(l)) impacting pass-through business owners.
• Increased IRS funding for enforcement and other actions.
• Other enhancements to tax rules.

The Infrastructure Investment and Jobs Act (the Infrastructure Act) was signed into law on Nov. 15, 2021. This bill provides funding for many forms of national infrastructure projects and only includes four tax changes: 

• The early expiration of the employee retention credit.
• Form 1099-B-style tax information reporting is extended to include cryptocurrency and other digital assets.
• The rules extending disaster-related tax deadlines are expanded.
• Capital contributions to public utilities from the government for certain infrastructure projects can be received tax-free.

Section 1202 was enacted in 1993 to encourage investment in small businesses. It allows individuals to avoid paying taxes on up to 100% of the taxable gain recognized on the sale of qualified small business corporation stock, sometimes referred to as QSBS. And even though it’s framed as a small business tax incentive, a business can be quite large and still qualify as a “small business.” While this has been in existence for many years, the current 100% gain exclusion continues to garner significant interest, especially in an era of proposals to raise the capital gain tax rate.

One of the most significant tax changes for businesses in 2022 is a requirement that taxpayers capitalize and amortize their research and experimentation (R&E) expenses paid or incurred after Dec. 31, 2021, under Section 174. This was originally enacted as part of the Tax Cuts and Jobs Act in 2017 but had a delayed effective date.

The Tax Relief for American Families and Workers Act of 2024 (TRAFWA), which passed the House in January 2024 and failed in the Senate in July 2024, was the culmination of several years of developments and lobbying efforts. It included significant proposals about many items, including the deductibility of research and experimentation (R&E) expenses under Section 174, deductibility of business interest expenses under Section 163(j), restoration of 100% bonus depreciation, and employee retention credit (ERC) enforcement, among others.

TRAFWA ultimately wasn’t enacted despite considerable bipartisan support for its proposed tax changes. However, core provisions from that bill will undoubtedly feature prominently during 2025 as negotiations regarding the expiration of the Tax Cuts and Jobs Act advance.