TechTax Q1 2024: Important Tax and Legislative Updates for the Technology Industry

As the technology industry continues to be a driving force in global innovation and economic growth, staying abreast of the latest tax legislation and regulatory changes is essential for businesses. From start-ups and founders to seasoned entrepreneurs, this information will help inform decisions and optimize financial strategies.

Tax Relief for American Families and Workers Act of 2024 (pending legislation)

On Friday, Jan. 19, the House Committee on Ways and Means and Senate Finance Committee announced proposed legislation titled The Tax Relief for American Families and Workers Act of 2024. On Jan. 31, the House passed the bill. The bill is currently sitting with the Senate. The likelihood of this legislation passing is still unknown; however, passing the House vote suggests strong bipartisan support, with significant momentum behind getting a deal done.

Section 174 – Research and Development Expenditures

As part of the TCJA, beginning in 2022, taxpayers were required to capitalize and amortize all research and development expenditures instead of deducting these expenses in the year incurred. This change is particularly impactful to the technology industry and resulted in many taxpayers owing income tax in 2022, despite generating losses for financial reporting purposes.

The pending legislation includes a proposal to allow immediate expensing of domestic research expenses retroactively back to 2022 and through 2025. Taxpayers will be able to either amend 2022 income tax returns or deduct the unamortized 2022 expenses in 2023 through an accounting method change. The good news: Potentially larger than expected deductions on 2023 returns if projections assumed these expenses would be capitalized. If this happens, taxpayers may be able to request a refund or reduce future estimated payments accordingly.

For additional information on this proposed legislation, including other provisions that may impact business, go here.

IRS Issues Cryptocurrency Reporting Receipts Transitional Guidance

The IRS released Announcement 2024-4, providing transitional guidance under IRC Section 6050I related to reporting transactions involving the receipt of digital assets, and clarified that at this time, digital assets are not required to be included when determining whether cash received in a single transaction (or in two or more related transactions) meets or exceeds the reporting threshold for filing Form 8300. Additional guidance forthcoming.

Indiana EDGE Income Tax Credit Update

The Indiana EDGE income tax credit went through a significant policy change in 2023. Starting with tax year 2023, if an employee of a participating company receives a W-2 and K-1 (regardless of ownership percentage), the employee is no longer eligible under the EDGE program. This policy has a wide range of implications. Companies could find themselves receiving a slightly less or significantly less EDGE credit award than what they would normally receive. Ultimately, the impact requires a case-by-case examination, and in many cases, can be mitigated by amending the EDGE agreement. Reach out to your KSM advisor for more information on the potential impact and assistance with amending agreements if appropriate. Please note that while amending an EDGE agreement is a relatively painless process, it can take the IEDC up to six months to fully execute an amendment. Thus, if a company intends to file its Indiana income tax return by Friday, March 15, there is a strong possibility that the amendment will not be in place, and the IEDC will not issue EDGE credit letters while an amendment is open. Therefore, in addition to determining the impact on the credit amount, timing of receiving the credit and filing the return must also be considered.

KSM’s tax professionals follow tax legislation across the country. If you have questions about how this or other legislative actions might affect your business, please contact your KSM advisor or complete this form.