Business Tax Planning for Tax Cuts and Jobs Act (TCJA) Sunset

The Tax Cuts and Jobs Act (TCJA) of 2017 introduced substantial tax reductions and incentives for businesses, many of which are set to expire by the end of 2025. As this sunset approaches, businesses must engage in strategic tax planning to mitigate potential financial impacts. This article outlines key considerations and strategies for businesses to prepare for the post-TCJA landscape.

Key Provisions Set to Expire

Several significant tax provisions benefiting businesses are scheduled to lapse, including:

• Corporate Tax Rate Stability – The TCJA permanently lowered the corporate tax rate to 21%. However, potential legislative changes could lead to rate increases, making it essential for businesses to anticipate higher tax burdens.
• Qualified Business Income Deduction (QBI) – Pass-through businesses (LLCs, S corporations, sole proprietorships) currently enjoy a 20% deduction on qualified business income. This deduction is set to expire, potentially increasing taxable income for these entities.
• Bonus Depreciation – The TCJA allowed businesses to deduct 100% of the cost of eligible property in the year of acquisition. This provision is set to phase out gradually, reducing to 80% in 2023, 60% in 2024, and fully expiring in 2027.
• Interest Expense Deduction Limitations – The TCJA limited the deduction of business interest expenses to 30% of adjusted taxable income. With the expiration, businesses may face tighter restrictions, impacting debt-financed operations.
• Research & Development (R&D) Expensing – The immediate expensing of R&D costs may revert to a five-year amortization schedule, affecting businesses that rely on innovation and technological advancements.

Strategic Tax Planning Approaches

To navigate these impending changes, businesses should consider the following strategies:

1. Accelerate Deductions and Capital Investments – Taking advantage of the remaining bonus depreciation and Section 179 expensing rules before they phase out can optimize deductions.
2. Evaluate Business Structure – With the potential expiration of the QBI deduction, pass-through businesses may reassess their entity type and consider whether a C corporation structure is more tax-efficient.
3. Optimize Interest Expense Planning – Businesses relying on debt financing should explore restructuring loans or increasing equity financing to minimize potential tax liabilities.
4. Maximize R&D Credits – Companies engaged in research activities should ensure they are fully leveraging available tax credits before the amortization requirement takes effect.
5. Plan for Potential Rate Increases – If corporate tax rates rise post-TCJA, businesses may benefit from accelerating income recognition under the current lower rates.

Conclusion

The sunset of the TCJA presents both challenges and opportunities for businesses. Proactive tax planning can help mitigate adverse impacts and maximize available benefits. Consulting with tax professionals and financial advisors will be essential in navigating the evolving tax landscape and ensuring continued profitability.

By taking strategic action now, businesses can position themselves for a smoother transition and financial stability in the post-TCJA era.