The Tax Cuts and Jobs Act (TCJA) of 2017 enacted some major changes to the Internal Revenue Code, but some of those provisions were only temporary. A number of significant provisions are set to expire after 2025, including certain tax benefits to businesses. Although it is possible that Congress may extend some of these tax benefits, it is important to understand which provisions are expiring so business can try to maximize tax incentives.
Below is a brief discussion of two key business provisions, qualified business income and bonus depreciation, both of which are set to expire after 2025 for qualified business income and after 2026 for bonus depreciation.
Although TCJA permanently changed the corporate tax rate structure to a flat 21% tax rate, eligible passthrough entities only received a temporary tax benefit for certain business income. TCJA provided for owners of eligible passthrough businesses, such as partnerships and S corporations as well as certain sole proprietorships, to claim a deduction of up to 20% of qualified business income. Beginning in 2026, this deduction will no longer be available. Therefore, it is important for businesses to ensure that they perform an annual review to ensure they are claiming the tax benefits that they are eligible to claim.
TCJA expanded bonus depreciation deductions to qualified property. TCJA allowed for applicable percentages of bonus depreciation to be claimed on qualified property based on when it was placed in service. Starting in 2027, there will be no bonus depreciation. To help take advantage of accelerating depreciation deductions, a cost segregation study may be beneficial to help a business capture depreciation costs quicker.
We will continue to monitor any legislative updates to these provisions. Nevertheless, it is important to understand the impact of these changes. It is never too early to start tax planning.
