Tax Relief for American Families and Workers Act of 2024: What Small Businesses Need to Know

Did you know that nearly 4 million small businesses claimed bonus depreciation or R&D cost deductions in a single tax year? If your business invests in equipment, conducts research, or hires independent contractors, the Tax Relief for American Families and Workers Act of 2024 could significantly reduce your tax burden—but only if you understand how to leverage its provisions.

This bipartisan legislation passed the House with overwhelming support but faced challenges in the Senate. Whether it becomes law or not, understanding these tax relief measures helps you prepare for current and future tax-saving opportunities. Let's break down exactly what this Act means for your small business.

What Is the Tax Relief for American Families and Workers Act?

The Tax Relief for American Families and Workers Act of 2024 (H.R. 7024) is a bipartisan tax package designed to restore and expand pro-growth tax policies that benefit working families and small businesses. Introduced by Senate Finance Committee Chairman Ron Wyden and House Ways and Means Committee Chairman Jason Smith, the Act aims to enhance American competitiveness while supporting everyday workers.

On January 31, 2024, the House of Representatives passed the bill with a decisive 357-70 vote, demonstrating strong bipartisan support. However, the legislation encountered obstacles in the Senate, where it failed to advance in a cloture vote that fell short of the required 60-vote threshold with a 48-44 tally.

Despite its uncertain legislative future, the provisions within this Act represent important tax relief mechanisms that may resurface in future legislation or inform your tax planning strategy.

Five Key Tax Provisions That Impact Small Businesses

1. 100% Bonus Depreciation Restoration

What it means: Businesses can immediately deduct the full cost of qualified equipment and machinery instead of spreading depreciation over several years.

Who benefits: Any business that purchases short-lived capital assets like equipment, vehicles, computers, or machinery.

Practical example: If you purchase a $100,000 piece of equipment under 100% bonus depreciation, you can deduct the entire $100,000 in the year of purchase rather than taking smaller deductions over 5-7 years. This immediate write-off can dramatically reduce your taxable income in the purchase year.

Current situation: Without this Act, bonus depreciation has been phasing down—60% in 2024, 40% in 2025, and so on until it reaches zero. The Act would restore full expensing retroactively for investments made after December 31, 2022, through the end of 2025.

Real-world impact: A manufacturing company that invested $500,000 in new machinery in 2023 could deduct the full amount under this provision, potentially saving $105,000-$185,000 in federal taxes depending on their tax bracket, rather than spreading the deduction over multiple years.

2. Immediate Research & Development (R&D) Expensing

What it means: Companies can fully deduct domestic R&D expenses immediately rather than amortizing them over five years.

Who benefits: Software developers, manufacturers developing new products, biotech firms, engineering companies, and any business conducting qualifying research activities.

Practical example: A software startup that spends $200,000 developing a new application can deduct the entire amount in the year spent. Under previous rules requiring amortization, they would only deduct $40,000 per year over five years.

Qualifying activities include:

• Testing different database architectures for scalability
• Developing new algorithms or software features
• Creating prototypes of new products
• Conducting experiments to improve existing processes
• Automating internal business systems

Small business advantage: Qualified Small Businesses (companies with less than $5 million in gross receipts) can apply up to $500,000 annually in R&D tax credits against their payroll tax obligations. This creates immediate cash flow relief by reducing quarterly payroll tax payments.

Impact: According to Treasury data, 3.8 million small businesses claimed bonus depreciation or R&D deductions in tax year 2021. Restoring immediate R&D expensing could free up billions in working capital for innovation-focused businesses.

3. Expanded Section 179 Expensing Limits

What it means: The maximum amount a small business can immediately write off for equipment purchases increases to $1.29 million (up from the previous $1 million cap), with a total equipment purchase limit of $3.22 million.

Who benefits: Small to mid-sized businesses that make significant equipment investments but don't exceed the threshold where the deduction phases out.

How it works: Section 179 allows immediate expensing of qualified business equipment, but unlike bonus depreciation, it has dollar limits and cannot create a net loss.

Practical example: A roofing contractor named Janine purchases a heavy-duty truck with a gross vehicle weight rating (GVWR) of 8,000 pounds for $55,000. Because it qualifies as a "heavy" vehicle used exclusively for business, she can deduct the full $55,000 under Section 179, assuming her business income exceeds this amount.

Qualifying property includes:

• Office furniture and fixtures
• Computers and software
• Machinery and equipment
• Most vehicles with GVWR over 6,000 pounds used for business
• Restaurant kitchen equipment
• Medical and dental equipment

Important limitation: Your Section 179 deduction cannot exceed your taxable business income. If your business earns $500,000 in profit, your Section 179 deduction is capped at $500,000.

Indexing for inflation: Under the Act, these limits would adjust annually for inflation, ensuring the deduction maintains its value over time.

4. Enhanced Interest Deductibility

What it means: The 30% limit on interest deductions would be calculated based on earnings before interest, taxes, depreciation, and amortization (EBITDA) instead of the more restrictive earnings before interest and taxes (EBIT).

Who benefits: Businesses that have borrowed money and pay significant interest expenses, particularly those in capital-intensive industries or those that borrowed at today's higher interest rates.

Why it matters: Using EBITDA as the baseline provides a larger income figure, which means businesses can deduct more interest expense. This is especially valuable for companies that have:

• Large depreciation expenses
• Significant amortization costs
• Borrowed to expand operations
• Refinanced at higher interest rates

Practical example: A restaurant with $1 million in EBITDA but only $400,000 in EBIT (after depreciation and amortization) pays $150,000 in annual interest on equipment loans. Under the EBITDA standard, they could deduct up to $300,000 in interest (30% of $1 million). Under the EBIT standard, they'd be limited to $120,000 (30% of $400,000), forcing them to carry forward $30,000 to future years.

Retroactive application: This provision would apply retroactively from 2022 through 2025, potentially allowing businesses to amend previous tax returns and claim additional refunds.

5. Increased 1099 Reporting Threshold

What it means: The reporting threshold for payments to independent contractors increases from $600 to $1,000 and adjusts for inflation after 2024.

Who benefits: Any business that hires freelancers, consultants, or independent contractors.

Administrative relief: This change reduces paperwork and compliance burden. Instead of issuing dozens of 1099-NEC forms for small payments, businesses can focus on significant contractor relationships.

Practical example: If you hire five different freelance graphic designers throughout the year and pay each $700-900, you won't need to issue 1099 forms to those who received less than $1,000. This saves time on tax preparation and reduces the risk of penalties for missed or incorrect forms.

Important note: This doesn't change your ability to deduct these expenses—you can still write off all legitimate business expenses regardless of whether you issue a 1099.

How to Calculate Your Potential Tax Savings

Let's walk through a comprehensive example that combines multiple provisions:

Scenario: You own a software development company that:

• Earned $800,000 in revenue and $400,000 in profit (2024)
• Spent $150,000 on R&D activities
• Purchased $80,000 in new computers and equipment
• Paid $25,000 in interest on a business loan

Without the Act:

• R&D deduction (amortized): $30,000 (year 1 of 5)
• Equipment depreciation (60% bonus): $48,000
• Interest deduction: Limited based on EBIT calculations
• Taxable income: Approximately $322,000

With the Act:

• R&D deduction (immediate): $150,000
• Equipment deduction (100% bonus): $80,000
• Interest deduction: Potentially higher under EBITDA standard
• Taxable income: Approximately $170,000

Tax savings: At a 21% corporate tax rate, this represents approximately $31,920 in federal tax savings in year one alone ($152,000 difference × 21%).

For a qualified small business, the additional R&D credit could offset up to $15,000 in payroll taxes (10% of $150,000), creating immediate cash flow relief.

What Happened to the Bill? Current Legislative Status

Despite strong House support, the Tax Relief for American Families and Workers Act faces an uncertain future in the Senate.

House passage: On January 31, 2024, the House voted 357-70 to approve H.R. 7024, demonstrating rare bipartisan agreement on tax policy.

Senate challenges: In late July 2024, the Senate held a cloture vote to advance the bill to floor debate. The measure fell short with 48 senators in favor and 44 opposed, failing to reach the 60-vote threshold required to proceed.

Unusual voting coalitions: Three Republicans (Senators Josh Hawley of Missouri, Markwayne Mullin of Oklahoma, and Rick Scott of Florida) joined Democrats in support, while two independents who typically caucus with Democrats (Joe Manchin of West Virginia and Bernie Sanders of Vermont) opposed the measure.

Possible revival: Senate Majority Leader Chuck Schumer strategically voted "no" on the cloture motion—a procedural move that allows him to bring the bill up for another vote later. While conventional wisdom suggests the bill won't advance in its current form, tax provisions often resurface in year-end legislative packages or future tax reform efforts.

What Small Business Owners Should Do Now

Even without the Act becoming law, smart tax planning can maximize your deductions under current rules:

1. Track R&D Activities Meticulously

Many small businesses conduct qualifying research without realizing it. Document:

• Hours spent on software development and testing
• Wages paid to employees working on new product development
• Contractor fees for research activities
• Cloud computing and infrastructure costs for development environments
• Materials and supplies used in prototyping

Action step: Create a dedicated accounting category for R&D expenses and require employees working on qualifying projects to track their time.

2. Strategically Time Equipment Purchases

Under current law, bonus depreciation is phasing down by 20% per year:

• 2024: 60% bonus depreciation
• 2025: 40% bonus depreciation
• 2026: 20% bonus depreciation
• 2027 and beyond: 0% (unless extended)

Action step: If you're planning major equipment purchases, accelerating them into 2024 or 2025 provides higher first-year deductions than waiting.

3. Understand Section 179 vs. Bonus Depreciation

These two deductions have different rules and advantages:

Section 179:

• Dollar limits ($1.22 million for 2024)
• Cannot exceed business income (can't create a loss)
• Available only for new and used equipment
• Requires election on your tax return

Bonus depreciation:

• No dollar limit
• Can create a net operating loss
• Currently phasing down from 100%
• Applies only to new equipment (with limited exceptions)

Action step: Consult with a tax professional to determine the optimal combination of these deductions based on your specific situation.

4. Maintain Detailed Contractor Records

Even if the 1099 threshold increases, maintain comprehensive records of all payments to independent contractors:

• Contractor agreements
• Invoices and payment receipts
• W-9 forms (collect before making payments)
• Nature of services provided

Action step: Implement a system that automatically requests W-9 forms when you onboard new contractors and tracks cumulative payments throughout the year.

5. Calculate Your Interest Deduction Limitation

If your business has significant debt, understand how the interest deduction limitation affects you:

Calculate your current EBIT and EBITDA: This helps you understand how much additional interest you could deduct if the Act passes or similar legislation emerges.

Consider timing of debt payments: If enhanced interest deductibility becomes available retroactively, you may be able to amend prior-year returns.

Action step: Ask your accountant to calculate your business's adjusted taxable income under both EBIT and EBITDA standards to quantify the potential benefit.

Industry-Specific Impacts

Manufacturing and Production

Key benefits:

• 100% bonus depreciation on production equipment and machinery
• R&D expensing for process improvements and new product development
• Enhanced interest deductibility for capital-intensive operations

Example: A custom furniture manufacturer invests $250,000 in CNC equipment and spends $75,000 developing a new joinery technique. Full expensing of both investments could reduce taxable income by $325,000, saving approximately $68,250 in taxes at a 21% corporate rate.

Software and Technology Companies

Key benefits:

• Immediate R&D expensing for software development (most impactful)
• Payroll tax credit offset for qualified small businesses
• Section 179 for computers and equipment

Example: A SaaS startup with $3 million in revenue spends $600,000 on software development. Under immediate expensing, they deduct the full amount. As a qualified small business, they could also claim up to $60,000 in R&D credits to offset payroll taxes, improving cash flow.

Restaurants and Hospitality

Key benefits:

• Bonus depreciation on kitchen equipment, furniture, and point-of-sale systems
• Enhanced interest deductibility (especially valuable given depreciation-heavy operations)
• Section 179 for qualified improvement property (interior renovations)

Example: A restaurant opens a second location, spending $400,000 on kitchen equipment, interior improvements, and furniture. Full bonus depreciation provides a $400,000 first-year deduction, potentially saving over $84,000 in federal taxes.

Professional Services (Consultants, Lawyers, Accountants)

Key benefits:

• Section 179 for office equipment, computers, and furniture
• Higher 1099 reporting threshold reduces administrative burden
• R&D credits for firms developing proprietary software or methodologies

Example: A mid-sized law firm purchases $150,000 in new computer systems and office furniture. Section 179 provides immediate expensing, and the reduced 1099 threshold saves several hours of administrative time by eliminating the need to issue forms to low-dollar service providers.

Healthcare Practices

Key benefits:

• Bonus depreciation and Section 179 for medical equipment
• R&D expensing for practices developing new diagnostic techniques
• Enhanced interest deductibility for practice expansions financed with debt

Example: A dental practice purchases $200,000 in new diagnostic imaging equipment and expands into a larger space with $100,000 in qualified improvement property. Combined deductions could reduce taxable income by $300,000.

Common Mistakes to Avoid

1. Failing to Document Qualifying Activities

The mistake: Conducting R&D activities but not documenting them properly, resulting in lost deductions.

The fix: Implement a contemporaneous documentation system that captures:

• Project descriptions and technical objectives
• Employee time tracking for qualifying activities
• Expenses directly related to research projects
• Results and learnings from experiments and testing

2. Confusing Personal and Business Use

The mistake: Attempting to deduct 100% of an asset used partially for personal purposes.

The fix: Equipment must be used more than 50% for business to qualify for Section 179 or bonus depreciation. Maintain mileage logs for vehicles and usage logs for other equipment that might have personal use.

3. Not Considering State Tax Implications

The mistake: Assuming state tax treatment matches federal rules.

The fix: Many states have different rules for bonus depreciation and Section 179. Some states decoupled from federal bonus depreciation provisions, meaning you might get a federal deduction but still owe state taxes on that income. Consult a tax professional familiar with your state's regulations.

4. Missing the Placed-in-Service Requirement

The mistake: Ordering equipment in December but not receiving it until January, missing the current year's deduction.

The fix: For depreciation purposes, an asset must be "placed in service" (installed and ready for use) by December 31 to claim the deduction for that tax year. Plan large purchases accordingly and ensure delivery before year-end if you want the current-year tax benefit.

5. Not Comparing Section 179 and Bonus Depreciation

The mistake: Automatically using Section 179 without considering whether bonus depreciation might be more beneficial.

The fix: Run the numbers both ways. Bonus depreciation can create a net operating loss (NOL) that can offset future profits, while Section 179 is limited to taxable income. If you expect higher income in future years, creating an NOL with bonus depreciation might provide more long-term value.

Beyond This Act: What's Next for Business Tax Policy

The Tax Relief for American Families and Workers Act represents broader trends in business tax policy worth monitoring:

Renewed Focus on American Manufacturing

Both parties increasingly support tax incentives that encourage domestic production and reduce dependence on foreign supply chains. Future legislation will likely include:

• Enhanced deductions for reshoring manufacturing operations
• Additional credits for domestic semiconductor and battery production
• Expanded tax benefits for clean energy and green manufacturing

R&D Incentives as Competitiveness Strategy

With global competition intensifying, policymakers view R&D tax incentives as essential to maintaining American innovation leadership. Expect:

• Potential expansion of qualified research expenses definitions
• Increased payroll tax credit limits for small businesses
• Simplified documentation requirements to increase participation

Small Business Relief Measures

Political consensus exists around reducing compliance burdens for small businesses. Future legislation may include:

• Further increases to the 1099 reporting threshold
• Simplified depreciation rules for businesses below certain revenue thresholds
• Enhanced deductions for startup costs and organizational expenses

Interest Deductibility Debates

As interest rates have risen significantly, the limitation on interest deductibility has become more burdensome. This debate will continue, with possible outcomes including:

• Permanent restoration of EBITDA as the calculation basis
• Higher percentage thresholds (beyond 30%)
• Exemptions for small businesses below specific revenue levels

Prepare for Opportunity When It Arises

While the Tax Relief for American Families and Workers Act of 2024 hasn't become law, its provisions highlight valuable tax-saving strategies available under current rules and potential future legislation.

The key takeaways:

• Current law still offers significant depreciation benefits, though they're phasing down
• R&D activities qualify for valuable credits even without immediate expensing
• Strategic timing of equipment purchases maximizes available deductions
• Proper documentation is essential to defend deductions during audits
• State tax treatment may differ significantly from federal rules

Business owners who understand these provisions can make informed decisions about equipment purchases, R&D investments, and financial planning—regardless of whether this specific bill becomes law.

Simplify Your Tax-Season Financial Management

As you navigate complex tax provisions like bonus depreciation, R&D credits, and Section 179 deductions, maintaining accurate financial records becomes absolutely essential. Come tax time, you'll need detailed documentation of equipment purchases, R&D expenses, contractor payments, and interest costs to maximize your deductions and defend them during audits.

Beancount.io provides plain-text accounting that gives you complete transparency and control over your financial data—no black boxes, no proprietary formats that become obsolete. Your accounting records are stored in human-readable text files that you can version control, script against, and keep forever. Whether you're tracking qualifying R&D expenses or documenting equipment purchases for depreciation, Beancount's transparent approach ensures you always have the detailed audit trail you need. Get started for free and experience accounting built for the modern, tax-conscious business owner.

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Sources:

• Business Tax Provisions in the Tax Relief for American Families and Workers Act of 2024 | Congress.gov
• Working Families, Small Businesses Win Under Tax Relief for American Families and Workers Act - Ways and Means
• The Tax Relief for American Families and Workers Act of 2024: Details & Analysis - Tax Foundation
• Senate fails to advance major tax bill that would expand Child Tax Credit - CBS News
• Bonus Depreciation: A Comprehensive Guide for Businesses in 2024
• Section 179 Deduction: Rules in 2025 and 2026 - NerdWallet
• R&D Tax Credits for Startups and Small Businesses | StrikeTax