Prepare Now for Possible Tax Changes

Remember the olden days of 2017? Donald Trump had shocked the world by becoming president, and he was aggressively pushing through significant policy changes. Oh, wait, are we watching a rerun?

Joking aside, I’m referring to the Tax Cuts and Jobs Act (TCJA) of 2017. This was one of the hallmark accomplishments of the first Trump presidency, which delivered substantial tax changes that affected many businesses. A seldom-considered provision at the time, however, was that many elements of the TCJA are set to expire at the end of 2025. This sunsetting eliminates or reduces some tax benefits currently enjoyed by businesses unless Congress passes new legislation to extend them.

The TCJA

As a refresher, the TCJA aimed to reduce tax rates, simplify the tax code, and stimulate growth. It lowered income tax rates, increased deductions for pass-through entities, altered depreciation rules, and introduced the Opportunity Zone program. Many business owners benefited from these changes.

Why it Matters

The TCJA included expiration dates that essentially kicked the can on possible deficits, but this meant many of these tax breaks for businesses were not permanent.

A budget is still being debated at this time, but the following key changes remain possible:

• TCJA lowered the individual tax rates. In the event of a sunset, the rates revert to higher pre-TCJA levels, increasing pass-through business owners’ tax burdens.
• The 20% deduction for qualified business income from pass-through entities like S corporations, partnerships, and sole proprietorships could expire. This deduction has helped many business owners reduce their tax burden.
• The ability to immediately deduct 100% bonus depreciation of the cost of eligible property the year it is placed in service is currently being phased out. Bonus depreciation of only 40% is allowed for 2025 and will be reduced by 20% each year until it is zero for 2027 and later. In some cases, this affects capital expenditure decisions by making long-term investments less attractive.
• To meet reconciliation requirements, the TCJA featured revenue-raising provisions, including amortization of 174 costs (research and experimentation). Eligible contractors have seen larger tax burdens because they are unable to deduct expenses in the year they are incurred. This tax law has received a lot of attention from business owners.  

The Latest

Given that Republicans narrowly control both houses of Congress and have shown in committee that they are inclined to make these tax measures permanent, as the president has requested, it’s quite possible that these changes will become permanent. CBIZ is continually tracking tax and budget changes. And while there is a lot of talk about extending many elements of the TCJA, nothing is official at this time.

In May, the House of Representatives passed a multitrillion-dollar reconciliation bill known as the “One Big Beautiful Act.” H.R. 1 is a reconciliation bill that includes budgetary provisions related to the border, defense, energy policy, spending cuts, the debt ceiling, and taxes, which were approved by 11 House committees. The tax proposals are largely consistent with the bill that was approved by the House Ways & Means Committee, except for certain last-minute changes made to the SALT cap. Under current law, individuals who itemize deductions are limited to up to $10,000 in state, local, and foreign income, property, or sales and use taxes (the “SALT” cap). In the past several years, most states with an individual income tax have enacted laws that allow owners of pass-through entities to legitimately work around this limit by imposing an entity-level tax on the business. Under the provisions in the current bill, effective for years beginning in 2025, the annual SALT Cap would increase from $10,000 to $40,000, subject to a phase-out rule.

The Ways & Means reconciliation bill is estimated to cost $3.7 trillion over 10 years. This Bill addresses some of the issues discussed above and not only restores but, in certain matters, enhances the prior tax benefits. The Senate, which is likely to produce its own reconciliation package in accordance with the Senate’s instructions in the FY2025 concurrent budget, aims to pass the budget bill by July 4. For additional details, please read House Approves the “One Big Beautiful Act” Reconciliation Bill.

Work With an Expert

Changes like we’re facing this year are tricky enough to warrant some professional help to navigate our complex tax codes, which include state and local complexities. Working with a construction tax professional who lives and breathes taxes can not only provide peace of mind but also open savings opportunities you may not have considered. The timing of legislative changes requires special attention to set an optimal tax savings strategy. 

Start Now

Whether you use CBIZ or another provider, it’s never too early to consult with an expert and start planning. The potential for TCJA changes this year are a compelling reason to act now.

If you have specific or general tax questions, contact a CBIZ construction specialist.