A.The following sections of H.R.1, as they amend provisions of the Internal Revenue Code, address income, deductions, or allowances that would be subject to federal income tax but for the enactment of H.R.1 and thus are subject to Rhode Island Business Corporation Tax.
1.Modification of limitation on business interest in 26 U.S.C. § 163(j), as amended by H.R.1 § 70303.
a.Pursuant to 26 U.S.C. § 163(j)(8)(A), “adjusted taxable income” means the taxable income of the taxpayer computed without regard to “any deduction allowable for depreciation, amortization, or depletion” for taxable years beginning after December 31, 2024. As § 163(j) reduces federal taxable income, to the extent a taxpayer takes a deduction federally, it must be added back for purposes of the Rhode Island Business Corporation Tax.
b.Rhode Island tax treatment
(1)Partnerships: If the federal partnership return is originally filed or amended and includes an additional deduction for the business interest expense than what was allowed prior to the enactment of H.R.1, then the partnership must add back the additional business interest expense on the RI Schedule HR1 - Entity form. This amount will be reflected as a deduction on Federal Form 1065, Line 15, which lowers federal taxable income.
(2)S-Corporations: If the federal S-corporation return is originally filed or amended and includes an additional deduction for the business interest expense than what was allowed prior to the enactment of H.R.1, then the S-corporation must add back the additional business interest expense on the RI Schedule HR1 - Entity form. This amount will be reflected as a deduction on Federal Form 1120-S, Line 13, which lowers federal taxable income.
(3)C-Corporations: If the federal corporation return is originally filed or amended and includes an additional deduction for the business interest expense than what was allowed prior to the enactment of H.R.1, then the corporation must add back the additional business interest expense on the RI Schedule HR1 - Entity form. This amount will be reflected as a deduction on Federal Form 1120, line 18, which lowers federal taxable income.
2.Treatment of certain qualified sound recording productions in 26 U.S.C. §§ 168(k) and 181, as amended by § 70434.
a.26 U.S.C. §§ 168(k) and 181 allow a special deduction for qualified sound recording productions, which reduces corporate taxable income for partnerships, S-corporations, and C-corporations. To the extent a taxpayer reduces federal corporate taxable income, the reduction amount must be added back for purposes of the Rhode Island Business Corporation Tax.
b.Rhode Island tax treatment
(1)Partnerships: If the federal partnership return is originally filed or amended and includes an additional deduction of qualified sound recording production under 26 U.S.C. §§ 168(k) and 181 than what was allowed prior to the enactment of H.R.1, then the partnership must add back the additional deduction on the RI Schedule HR1 - Entity form. This amount will be reflected as a deduction on Federal Form 4562 and be reflected as part of the “Other deduction” reported on Federal Form 1065, Line 21, which lowers federal taxable income.
(2)S-Corporations: If the federal S-corporation return is originally filed or amended and includes an additional deduction of qualified sound recording production under 26 U.S.C. §§ 168(k) and 181 than what was allowed prior to the enactment of H.R.1, then the S-corporation must add back the additional deduction on the RI Schedule HR1 - Entity form. This amount will be reflected as a deduction on Federal Form 4562 and be reflected as part of the “Other deduction” reported on Federal Form 1120-S Line 20, which lowers federal taxable income.
(3)C-Corporations: If the federal corporation return is originally filed or amended and includes an additional deduction of qualified sound recording production under 26 U.S.C. §§ 168(k) and 181 than what was allowed prior to the enactment of H.R.1, then the corporation must add back the additional deduction on the RI Schedule HR1 - Entity form. This amount will be reflected as a deduction on Federal Form 4562 and be reflected as part of the “Other deduction” reported on Federal Form 1120, line 26, which will lower federal taxable income.
3.Full expensing of domestic research and experimental expenditures in 26 U.S.C. § 174A, as added by § 70302.
a.H.R.1 adds 26 U.S.C. § 174A regarding amortization of research and experimental expenditures in the computation of federal taxable income. It includes two provisions impacting domestic research and experimental expenditures:
(1)Allowing all businesses to accelerate expensing of these expenditures starting with Tax Year 2025; and
(2)Allowing small businesses, defined as a business that has average gross receipts of $25 million or less (indexed for inflation), to retroactively accelerate expensing of these expenditures for Tax Years 2022, 2023, and 2024. For a taxable year beginning in 2025, the annual gross receipts test is $31 million or less due to inflation.
b.Rhode Island tax treatment
(1)If a partnership, S-corporation, or C-corporation elects to file an original or amended federal return for Tax Years 2022, 2023, and/or 2024 to accelerate these expenses, then the partnership or corporation shall file an original or amended return with Rhode Island for that tax year as well and shall complete RI Schedule 174A as an attachment with the paper or electronic filing. The amounts reported on the RI Schedule 174A will be added back on the correlating original or amended RI-1065, RI-1120C, or RI-1120S return for that tax year to effectuate the addback required pursuant to Rhode Island law. Future amortization deductions may not exceed twenty percent (20%) of the initial addback each subsequent year a deduction is taken as allowed by law.
(2)The partnership, S-corporation, or C-corporation shall complete this RI Schedule 174A amortization worksheet for the applicable tax year:
(3)Eligible small business partnerships, S-corporations, or C-corporations that do not elect to retroactively deduct certain unamortized amounts in Tax Years 2022, 2023, and/or 2024 may elect to accelerate the deduction of unamortized amounts paid for, or incurred in, tax years prior to Tax Year 2025 on the federal Tax Year 2025 filing. Rhode Island decoupled from this tax treatment, which means if this election is made at the federal level, the partnership or corporation is required to complete “RI Schedule 174A” and “2025 RI Schedule HR1 – Entity”, and then report on the correlating RI-1065, RI-1120S, or RI-1120C return for Tax Year 2025. These schedules may be filed as part of the entity’s paper or electronic filing.
(4)For Tax Year 2025, all partnerships, S-corporations, or C-corporations may elect to amortize research and experimental expenditures at the federal level. Rhode Island decoupled from this tax treatment for this tax year. If a partnership or corporation does not amortize on the federal filing, the taxpayer shall amortize the expenditures on the Rhode Island return. The taxpayer is required to complete “RI Schedule 174A” and “2025 RI Schedule HR1 – Entity” and then report on the correlating RI-1065, RI-1120S, or RI-1120C return for Tax Year 2025. These schedules may be filed as part of the entity’s paper or electronic filing.
(5)For all tax years, partnerships, S-corporations, and C-corporations will be required to maintain an amortization schedule for Rhode Island tax purposes. Any amount that is not allowed within the tax year may be carried forward for a total of five (5) years. Future amortization deductions may not exceed twenty percent (20%) of the initial addback each subsequent year a deduction is taken as allowed by law.
(a) Example:
Amortization Begin Year | Amortization % | Amortizable Amount | Annual Rhode Island Amount | Remaining Amount |
2022 | 20% | $200,000 | $40,000 | $160,000 |
2023 | 20% | | $40,000 | $120,000 |
2024 | 20% | | $40,000 | $80,000 |
2025 | 20% | | $40,000 | $40,000 |
2026 | 20% | | $40,000 | |
4.Increased dollar limitations for expensing of certain depreciable business assets in 26 U.S.C. § 179(b), as amended by § 70306.
a.26 U.S.C. § 179(b) sets limitations for expensing certain depreciable business assets. Increasing the expensing limits allows businesses to write off more asset costs immediately, which reduces corporate taxable income for partnerships, S-corporations, and C-corporations. To the extent a taxpayer reduces federal corporate taxable income, the reduction amount must be added back for purposes of the Rhode Island Business Corporation Tax.
b.Rhode Island tax treatment
(1)Partnerships: If the federal partnership return is originally filed or amended and includes an additional deduction for depreciation of assets under 26 U.S.C. § 179(b) than what was allowed prior to the enactment of H.R.1, then the partnership must add back the additional depreciation on the RI Schedule HR1 - Entity form. This amount will be reflected as a deduction on Federal Form 4562 and reported on Federal Form 1065, line 16a, which lowers federal taxable income.
(2)S-Corporations: If the federal S-corporation return is originally filed or amended and includes an additional deduction for depreciation of assets under 26 U.S.C. § 179(b) than what was allowed prior to the enactment of H.R.1, then the S-corporation must add back the additional depreciation on the RI Schedule HR1 - Entity form. This amount will be reflected as a deduction on Federal Form 4562 and reported on Federal Form 1120-S, line 14, which lowers federal taxable income.
(3)C-Corporations: If the federal corporation return is originally filed or amended and includes an additional deduction for depreciation of assets under 26 U.S.C. § 179(b) than what was allowed prior to the enactment of H.R.1, then the corporation must add back the additional depreciation on the RI Schedule HR1 - Entity form. This amount will be reflected as a deduction on Federal Form 4562 and reported on Federal Form 1120, line 20, which lowers federal taxable income.
