The Tax Cuts and Jobs Act (TCJA) of 2017 is currently scheduled to sunset at the end of 2025, meaning significant changes are on the horizon for taxpayers. Businesses need to be aware of a number of changes to current tax laws and take advantage of ways that they can maximize tax savings and minimize future tax liabilities. Taxpayers should note changes to the qualified business income (QBI) 20% deduction (Sec. 199A), and plan to maximize bonus depreciation and estate and gift tax exclusion benefits.
WHAT THIS MEANS FOR YOUR BUSINESS
Currently, small business owners with pass-through income are eligible to deduct up to 20% of their QBI on their tax returns. In general terms, QBI can be defined as the business’s net profit, excluding capital gains, dividends, interest, and foreign income.
Starting in 2026, the QBI deduction will no longer be available. It is in the best interest of eligible businesses to accelerate income from 2026 into 2025 and 2024. To the extent revenue can be accelerated in 2024 and 2025 or expenses can be deferred into 2026, the business will be able to benefit from the deduction provided by QBI.
Businesses are strongly encouraged to maximize bonus depreciation before the provision expires on December 31, 2026. Certain fixed assets, including computer equipment and software, office furniture, machinery, some vehicles, and qualified property, can be deductible expenses.
For tax year 2024, 60 percent of eligible purchases can benefit from bonus depreciation. For the years 2025 and 2026, the percentage of bonus depreciation declines to 40 percent and 20 percent, respectively. From an income tax perspective, it would be best to accelerate tax deductions as much as possible.
Finally, married business owners filing jointly should take estate and gift tax exclusions into thoughtful consideration. They will need to determine whether it makes sense to top off their lifetime gifts above the expected post-2025 exemption amount of approximately $7…
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