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Keeping up with the latest tax law changes is a never-ending journey, filled with twists and turns that can disorient even the most seasoned CFO. And it doesn’t help that the slightest misstep can have significant financial repercussions, leaving no room for error. That’s why taking a proactive approach to tax planning is crucial.
With this in mind, CFOs must remember that several changes made in the 2017 tax law commonly known as the Tax Cuts and Jobs Act (TCJA) are set to expire — or sunset — at the end of 2025. As these expirations will create additional complexity and uncertainty, it’s wise to collaborate with your tax professional sooner rather than later. With their expertise, you can develop a comprehensive and concrete game plan to keep your organization on track.
Let’s look at a few of the most significant sunsetting tax provisions from the TCJA.
Unfortunately, the opportunity for taxpayers to benefit from the full increase in bonus depreciation already has passed. The TCJA initially doubled the first-year bonus depreciation from 50% to 100%, but it was only accessible through the 2022 tax year. This percentage decreases to 80% this year, 60% in 2024, and will gradually phase out after 2026.
Bonus depreciation is a tax incentive allowing taxpayers to deduct a more significant percentage of the cost of qualifying property in the year it is placed in service. Qualified property may include machinery, equipment, vehicles and depreciable computer software. While bonus depreciation generally isn't available on real property, it is available generally for capital improvements if the improvement is made by the taxpayer and placed in service after the date when the building was first placed in service, is made to the interior portion of a non-residential building, and is not purchased from a related party.
Due to the gradual phase-out, companies can still see substantial tax savings if they make major qualifying purchases over the next one to two years. Still, they should also be looking at other ways to save — such as switching to the LIFO accounting method — as the year 2026 approaches.
Qualified Business Deduction
Another provision set to expire at the end of 2025 is the Section 199A deduction for Qualified Business Income (QBI). It was introduced in the TCJA to provide tax relief for owners of pass-through entities, such as sole proprietorships, partnerships, S corporations, and certain trusts and estates. This tax deduction allows eligible taxpayers to deduct up to 20% of their QBI from a qualified trade or business conducted by one of these pass-through entity types, subject to limitations based on W-2 wages or based on investments in depreciable property.
Legislative action could extend the deduction — or even make it a permanent law — but until a decision is made, businesses should proceed with the assumption it will be expiring.
Estate and Gift Tax Exemption
Another fundamental change brought about by the TCJA was a temporary increase in the estate tax exemption amount, which is the amount of a person's estate that can be passed on to heirs without incurring federal estate tax.
Before the TCJA, the estate tax exemption amount was around $5 million per individual (or $11 million for a married couple). The TCJA essentially doubled this exemption amount. For 2023, for example, the exemption is around $13 million per individual (or about $26 million for a married couple). These exemption amounts are adjusted annually for inflation.
On Jan. 1, 2026, this tax exemption is set to revert to the pre-TCJA levels (adjusted for inflation). This means that unless Congress takes action to extend or modify the exemption, the estate tax exemption will decrease significantly in 2026.
It's important to note that the estate tax exemption is separate from the annual gift tax exclusion, which allows individuals to give a certain amount of money or assets to others each year without incurring federal gift tax.
Qualified taxpayers should consult with their estate planning professionals to determine a game plan for taking advantage of this change before the expiration date or determine a path forward if more time is needed.
Navigating the expiring tax provisions of the TCJA is a multifaceted and intricate process, making it easy to get lost in the details. At CBIZ, our seasoned tax professionals have the experience and expertise to guide you through this complex landscape. We are committed to helping you identify the optimal path forward and crafting customized solutions tailored to your unique requirements. Contact us today.
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CBIZ MHM is the brand name for CBIZ MHM, LLC, a national professional services company providing tax, financial advisory and consulting services to individuals, tax-exempt organizations and a wide range of publicly-traded and privately-held companies. CBIZ MHM, LLC is a fully owned subsidiary of CBIZ, Inc. (NYSE: CBZ).