Planning for the Expiration of TCJA: For Business Owners

Written By: Brian Ellenbecker, CFP®, EA, CPWA®, CIMA®, CLTC®

A significant portion of the Tax Cuts and Jobs Act of 2017 (TCJA) are set to expire at the end of 2025, which gives us a little less than two years to plan around the change. The tricky part is while we know what provisions the law states will expire, it’s entirely possible Congress will try to change what expires and what doesn’t. That will leave a high degree of uncertainty around tax planning headed into 2026.

Absent action by Congress, tax rates increase, and the standard deduction and the child credit get smaller. Businesses will lose some tax breaks. There will also be some tax cuts: The deduction for state and local taxes expands, as will the mortgage deduction on larger loans. The personal and dependent exemptions will come back. In most cases, taxes will increase by more than the higher deductions will offset. The expansion of the premium tax credit will also expire.

Let’s explore some of the potential tax planning opportunities as the expiration of the TCJA approaches.

Two of the changes in 2025 that will likely have the biggest impact on business owners include the disappearance of qualified business income (QBI) and changes to bonus depreciation.

Qualified Business Income

Qualified business income was a new tax concept introduced in the TCJA. This provision allowed business owners to deduct up to 20% of their qualified business income if they were self employed or owned a pass-through business entity. The rule is complicated and there are certain limitations and restrictions, but for those that qualify, being able to exclude 20% of the income was a significant tax benefit.

This change might prompt owners to rethink their corporate structures when the law expires. Pass through entities would become less attractive, especially when you consider the corporate tax rate is scheduled to stay at its currently lower rate of 21% indefinitely. Converting to a C-Corp could make sense for certain business owners.

Bonus Depreciation

The accelerated business tax deduction, often referred to as bonus depreciation or Section 179 deduction, allows businesses to deduct a large portion of the purchase price of an eligible asset in the year of purchase, versus have to spread out over the asset’s useful life. The amount an owner is able to deduct as bonus depreciation has declined over the years. Prior to 2023, 100% of the depreciation was deductible immediately. That percentage dropped to 60% in 2024. It’s scheduled to drop further to 40% in 2025, 20% in 2026, and 0% beyond that.

Because of the declining benefit, if you’re considering the purchase of a depreciable asset, now might be the time to make that purchase, before the bonus deduction percentage drops further.

The tax planning provisions mentioned here are complicated rules. It’s important to work with your tax advisor and Shakespeare Financial Advisor to ensure you consider all aspects of these rules before taking any action. The Shakespeare team closely monitors news of these tax law changes and are here to help you plan accordingly. Reach out anytime with your questions.