As we approach the end of 2023, it’s essential to reflect on the economic challenges we’ve navigated throughout the year. Discussions around a potential recession, tight labor markets, and elevated inflation have dominated the business landscape. Rising interest rates, with a cumulative increase of 100 basis points in 2023, have added pressure on taxpayers to mitigate borrowing costs.

The political landscape, marked by a divided Congress struggling to pass legislation, including appropriations bills, makes significant tax reforms unlikely in the remaining months of the year. Talks of extending or modifying expiring provisions of the Tax Cuts and Jobs Act (TCJA) have surfaced, but the cost of such extensions is estimated at a substantial $3.4 trillion through 2035, creating a cautious approach given the political climate leading up to the 2024 elections.

Beyond the TCJA, various tax-related proposals have been discussed in Congress, although no significant legislation has passed thus far. Notable bills include the Tax Fairness for Workers Act, Small Business Growth Act, Providing for Life Act of 2023, and the Wall Street Tax Act of 2023, proposing a 0.1% financial transaction tax on stocks, bonds, and derivatives. The Lummis-Gillibrand Responsible Financial Innovation Act, addressing the tax treatment of digital assets, remains in the Senate Finance Committee.
If tax legislation does materialize before year-end, it is likely to consist of bipartisan provisions attached to must-pass bills, rather than standalone legislation. The restoration of current deductibility for R&D costs, potentially exempt from a five-year amortization period, enjoys broad consensus. However, compromises on other bundled provisions remain elusive.

Potential changes to the State and Local Tax (SALT) cap and other tax extenders, such as enhanced child and dependent care tax credits, increased child tax credits, and reinstatement of 100% bonus depreciation, are under consideration. The U.S. Supreme Court’s involvement in Charles G. Moore, et ux., v. United States, challenging the constitutionality of TCJA’s repatriation tax, could have significant implications on tax policy. A decision is not expected before June 2024.

Looking ahead, new IRS guidance is anticipated, covering areas such as business interest expense deduction, deferred compensation, non-compensatory options, disguised sale rules, and capital account guidelines for partnerships. Recently released proposed regulations include broker reporting of digital asset sales and exchanges, along with wage and apprenticeship rules under the Inflation Reduction Act.

We will keep you updated on any developments and ensure your tax strategy remains aligned with the evolving landscape.