President Biden’s proposed budget includes notable tax provisions for businesses
The federal government’s planned budget for the fiscal year 2024 has been made public by President Biden. They intend to reduce the deficit by about $3 trillion over ten years. However, several provisions in the budget will impact how much money individuals and corporations will owe in taxes. These plans reveal the Democrats’ top goals as they prepare for the 2024 election cycle. The tax provisions of the proposed budget address several topics important to business, such as:
Business tax provisions
- Corporate tax rates. The proposal would trim back the hefty cut to the corporate tax rate in the Tax Cuts and Jobs Act (TCJA). It would hike the tax rate for C corporations from 21% to 28% — still significantly less than the pre-TCJA rate of 35%. In addition, the effective global intangible low-taxed income (GILTI) rate would increase to 14%. The effective GILTI rate would rise to 21% with other proposed changes.
- Global minimum tax. The proposal would repeal Base Erosion and Anti-Abuse Tax (BEAT) liability, replacing it with an “undertaxed profits rule.” In conjunction with the GILTI regime, the rule would ensure that income earned by a multinational company, whether a parent company in the United States or elsewhere, is subject to a minimum rate of taxation regardless of where the income is earned.
- Stock buyback excise tax. The IRA created a 1% excise tax on the fair market value when corporations buy back their stock to reduce the difference in the tax treatment of buybacks and dividends. The proposal would quadruple the tax to 4%.
- Carried interest loophole. A “carried interest” is a hedge fund manager’s contractual right to a share of a partnership’s profits. Currently, it’s taxable at the capital gains rate if certain conditions are satisfied. The budget proposes to close this loophole.
Impact on corporate real estate
- Like-kind exchanges. Owners of particular appreciated real property can defer the taxable gain on exchanging the property for real property of a “like-kind.” The proposal would allow the deferral of gain up to an aggregate amount of $500,000 for each taxpayer ($1 million for married couples filing a joint return) each year for like-kind exchanges. Therefore, under this proposal, any like-kind gains over $500,000 (or $1 million for married couples) in a year would be recognized in the year the taxpayer transfers the real property.
- Low-income housing tax credit. The budget proposes to expand and enhance the largest federal incentive for affordable housing construction and rehabilitation.
More on the proposed budget to come
The budget proposal does not address more of the TCJA’s temporary tax provisions that will expire soon or have already. Numerous provisions will expire at the end of 2025. Some include the expanded standard deduction, lowered individual tax rates, qualified business income deduction for pass-through businesses, and limitation on the state and local tax deduction. This could impact the tax obligations of a wide range of taxpayers. We’ll let you know if there is significant movement on this front. Contact our RRBB accountants and advisors if you have any questions in the meantime.
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