As a business owner, you likely felt the impact of the Tax Cuts and Jobs Act (TCJA) over the past few years. This legislation, enacted in 2017, brought sweeping changes to the U.S. tax code, offering substantial tax relief to individuals and businesses alike. However, a significant aspect of the TCJA is its sunset clause: many of its provisions are set to expire at the end of 2025 unless renewed by Congress. This looming deadline has raised questions—and concerns—for business owners and individuals across the country.
With the potential expiration of the TCJA just a year away, it’s essential to understand how its provisions affect your business today and how a reversion to the old tax code could impact your bottom line. Here’s what you need to know to prepare and make informed decisions to safeguard your financial future.
1. Corporate Tax Rate Changes Could Eat into Profit Margins
The TCJA’s reduction of the corporate tax rate from 35% to a flat 21% was a game-changer for many businesses. This single change allowed companies to reinvest more profits into growth, increase wages, and take risks in innovation. If the TCJA sunsets, this rate could revert to pre-2017 levels, potentially shrinking profit margins and hindering business growth.
**Action Step**: Consider proactive tax planning strategies with your Accountant or financial advisor to explore alternative ways to maintain profitability if corporate tax rates increase.
2. Individual Tax Brackets Will Likely Rise, Affecting Take-Home Pay
The TCJA also lowered individual tax rates, which has boosted take-home pay for millions of Americans. Many small business owners file as pass-through entities, which means they pay taxes on business income at the individual rate. If individual rates revert to pre-TCJA levels, small business owners could see their tax bills increase—reducing cash flow for both personal use and reinvestment in their businesses.
**Action Step**: Evaluate your current income structure and determine how changes in individual tax rates might impact your net income. Now could also be a good time to explore tax-deferred retirement accounts or other financial instruments to potentially offset future tax increases.
3. The Potential Loss of the 20% Qualified Business Income Deduction
One of the most impactful provisions for small business owners under the TCJA was the introduction of the 20% Qualified Business Income (QBI) deduction for pass-through entities. This deduction effectively lowered the tax rate on qualified income by 20%, allowing many business owners to save thousands each year. Without renewal, this benefit will disappear, raising the effective tax rate on your business income.
**Action Step**: Review your current deductions and look into potential tax planning options. Structuring your business in a tax-efficient way might soften the impact if the QBI deduction is no longer available.
4. Increased Limits on Bonus Depreciation Could Go Away
The TCJA increased the bonus depreciation deduction, allowing businesses to write off 100% of the cost of certain capital assets immediately. This accelerated write-off has been a major incentive for businesses to invest in equipment, property, and other capital assets. If the TCJA sunsets, the bonus depreciation rate could drop back to pre-2017 levels, limiting how quickly businesses can recoup the costs of investments.
**Action Step**: Consider making planned capital investments before the end of 2025 to take advantage of the current 100% bonus depreciation. This strategy can maximize your deductions under the TCJA while it’s still in effect.
5. Other Business-Friendly Provisions Are at Risk
Several other provisions under the TCJA offered significant tax-saving opportunities, such as the expansion of Section 179 expensing limits, a reduction in the Alternative Minimum Tax (AMT) for corporations, and favorable treatment of certain research and development expenses. Without renewal, these advantages may disappear, impacting industries like technology, manufacturing, and healthcare that rely heavily on R&D.
**Action Step**: Schedule a meeting with your accountant to review all tax-saving provisions your business is currently using. Understanding the potential impact of these changes can help you prepare financially and identify other tax-saving opportunities that might be available.
In Conclusion: Why It’s Time to Prepare for 2025
The potential expiration of the Tax Cuts and Jobs Act brings a level of uncertainty for businesses across the U.S. While no one can predict how Congress will act, it’s prudent to start planning now. A proactive approach allows you to optimize your financial structure and explore tax strategies that help safeguard your business from potential increases in tax liability.
Don’t wait until the last minute to prepare for changes. By reviewing your tax strategy with a qualified accountant or tax strategist, you can position your business for success no matter what happens in 2025.
Ready to Prepare? Let’s Connect
If you’re wondering how to navigate the possible expiration of the TCJA and safeguard your profit margins, let’s connect. I specialize in helping business owners reduce tax liabilities, increase profitability, and prepare for what’s next. Together, we can create a plan that ensures your business is ready for whatever the future may bring.