Understanding the Implications of the TCJA Sunset on Business Taxation
As the TCJA sunset approaches, businesses are bracing for the expiration of several key tax provisions that have been instrumental in shaping the current landscape of business taxation. The Tax Cuts and Jobs Act, known as TCJA, introduced in 2017, is set to undergo significant changes by the end of December 2025, unless Congress intervenes.
One of the most notable aspects of the TCJA was the reduction of the US corporate tax rate from a top rate of 35% to a flat rate of 21%. This particular provision, fortunately for US corporate interests, is not on the sunset schedule. However, other beneficial measures such as the “Qualified Business Income (QBI) Deduction” which offers a 20% deduction for certain pass-through entities, are slated to end with the close of 2025.
The TCJA also made waves with its bonus depreciation allowances. Initially, businesses could deduct a full 100% bonus depreciation on qualified property. This percentage has been decreasing annually and is expected to phase out completely by 2027. The impact on tax planning strategies is significant as businesses consider whether to accelerate income and acquisitions to take advantage of the higher bonus depreciation rates before they continue to decline.
The repeal of the Alternative Minimum Tax (AMT) for corporations was another highlight of the TCJA. However, with the Inflation Reduction Act of 2022 reinstating a 15% AMT on adjusted corporate incomes above $1 billion, businesses must adapt once again. The IRS Notice 2023-64 provides further details on this development and its implications for corporate tax planning.
With these impending changes, it is crucial for businesses to consult with tax attorneys to navigate domestic and international tax planning for the years ahead. The sunset of the QBI deduction and bonus depreciation, along with other potential tax changes, such as modifications to business interest expense deductions and R&E expenditure treatments, necessitate proactive measures.
The recent disclosure by the US Small Business Administration regarding the vast number of small corporate entities without employees has led to the implementation of the “Corporate Transparency Act.” This act requires ownership disclosure from small domestic and offshore entities conducting business in the US. The connection between this reporting requirement and Congressional decisions on QBI deductions and AMT remains a point of interest for many.
As businesses look towards the future, understanding how the TCJA sunset will affect business taxation and what steps can be taken to prepare for these changes is paramount. The landscape of corporate taxation is shifting, and staying informed is key to successful tax planning.
