Planning for Tax Changes: 5 Key Considerations for Business Owners as the TCJA Expires

As we approach the expiration of key provisions of the Tax Cuts and Jobs Act (TCJA) in 2024 and 2025, business owners face a unique opportunity for strategic tax planning.

The TCJA, enacted in 2017, introduced significant changes to the tax code, and many of these provisions are set to sunset at the end of 2025. In this blog, we will explore five key planning opportunities for business owners to consider as they navigate the impending changes and are eager to optimize tax strategies.

Estate Tax Exemption Planning: The current estate tax exemption amount of $13.6 million per person ($27.2 million for married couples) presents a valuable opportunity for business owners to transfer wealth to the next generation without incurring the 40% federal estate tax rate. When TCJA sunsets the estate exemption rate amount may be reduced by 50%. By engaging in strategic estate planning techniques, such as gifting closely held stock or appreciated assets, business owners can work to lock in this high exemption amount over the next couple of years through various strategies, ensuring the preservation of wealth for future generations.
Changes in Marginal Tax Rates: With expectations of marginal tax rates increasing in the future (today’s rate is 37% and expected to go up to 39.6% in 2026) business owners should consider income recognition and tax planning strategies for the next couple of years. By strategically timing income recognition and tax deductions, business owners can minimize their tax liabilities and optimize their after-tax income.
Qualified Business Income (QBI) Deduction: The QBI deduction, which allows certain business owners to deduct up to 20% of their qualified business income, is set to expire after 2025. Business owners should consult with their tax advisors to determine the best tax planning strategies for maximizing this deduction over the next few years and optimizing their overall tax position.
Bonus Depreciation: The bonus depreciation provisions, which have provided generous tax benefits for property placed in service, are set to gradually phase out as well. Initially, businesses could take a 100% bonus depreciation deduction in the year of service, deviating from the standard depreciation schedule. However, the depreciation amount was reduced to 80% in 2023, followed by a further decrease to 60% this year. Looking ahead, it's expected to drop to 40% in 2025, then 20%, and ultimately to 0. Business owners should assess their capital investment plans and contemplate expediting equipment purchases or property placements in service to capitalize on the remaining bonus depreciation deductions before they expire. Such proactive measures can enhance tax efficiency and optimize financial outcomes.
Alternative Minimum Tax (AMT) Planning: The TCJA increased the exemption amount for the Alternative Minimum Tax (AMT), resulting in fewer taxpayers being subject to this parallel tax system. However, with the expiration of the TCJA provisions, more households may find themselves subject to the AMT in the future. Business owners should review their entity structures and income recognition strategies to ensure they are well-positioned to minimize their exposure to the AMT.

Conclusion: While the future of the tax code remains uncertain and Congress could certainly make adjustments, we highly recommend business owners proactively plan for the impending changes. By engaging in thoughtful tax planning and consulting with your professional advisors, business owners can optimize their tax strategies, minimize their tax liabilities, and position themselves for financial success in the post-TCJA era.

If you have a question or simply want to talk through your financial planning, we are here to help.

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DISCLOSURE: Jarrod Musick is an officer of Destiny Capital and Entrepreneur Aligned, a DBA of Destiny Capital. This article is for informational purposes only and should not be relied upon as a basis for your investment, business, or personal financial decisions. We recommend consulting with your wealth advisor, CPA/tax advisor and/or attorney, as applicable to your situation, prior to implementing any new tax, legal, or investment strategy. Advisory services provided by Destiny Capital Corporation, a Registered Investment Adviser.

ABOUT JARROD

Jarrod was born into financial planning and solving financial problems. With his financial advisor father Steve telling stories about finance around the dinner table from an early age, the idea that everyone has a different financial situation was always there. After an early professional career spent in nonprofit and government, Jarrod came back to his roots helping people plan and invest in 2011. Since then, he has worked with individual clients, led internal teams and ultimately became partner and the CEO of  Destiny Capital in 2017. With a passion for helping entrepreneurs change the world, Jarrod ultimately oversaw the creation of Entrepreneur Aligned in 2020. With both Destiny Capital and Entrepreneur Aligned, Jarrod leads teams that help people live lives of abundance where money is simply a tool to let everyone be a positive force for the world around them. When he isn’t working with the talented teams for EA and DC you can find him chasing his twins, wily trout or a podium spot at an OCR race.