TCJA Sunset: How Business Owners Can Prepare Now for Impending Tax Law Changes

One of the most significant tax bills in a generation is soon coming to an end.

The Tax Cuts and Jobs Act (TCJA) of 2017 was a comprehensive piece of tax legislation that introduced across-the-board tax cuts for businesses and individuals. Many of the TCJA tax provisions were not permanent and will unwind next year, reverting to the law in effect prior to the TCJA. Add to that an upcoming election, and uncertainty around tax policy changes is top-of-mind for many. Congress has its work cut out for it in 2025, as it must address possible tax changes. For now, it is uncertain what (if any) legislation may be adopted. Below is our guidance for business owners. And don’t miss our upcoming webinars that cover business, individual, and estate tax aspects of the TCJA changes and what to consider for tax years 2024 and 2025.

TCJA Business Provisions Scheduled to Change

Business owners should be aware of the following selected items that are scheduled to sunset in 2025:

• Individual Tax Rates: The TCJA cut individual tax rates and income amounts for these rates. These will change back to the pre-TCJA rates of 10, 15, 25, 28, 33, 35 and 39.6%. Note that the TCJA set the current tax rates to 10, 12, 22, 24, 32, 35 and 37%.
• 20% Qualified Business Income Deduction (QBI – Section 199A): This deduction reduced the tax rate for certain pass-through businesses operating as S Corporations, partnerships and sole proprietorships. When this deduction sunsets, the highest marginal tax rate on QBI eligible income will jump by 10% from 29.6% to 39.6% (an effective increase of nearly 34%).     
• SALT Deduction Cap: The TCJA instituted a cap of $10,000 for state and local tax (SALT) deductions, which is set to expire at the federal level. After the SALT cap was introduced by the TCJA, a workaround for pass-through entities was implemented in most states, allowing income-based state taxes from an entity to remain an entity-level tax and reduced income reported on the business owner’s Schedule K-1. The state law is not directly impacted by the TCJA provision expiration. 

Status of Other TCJA Business Provisions

Below are other selected TCJA provisions impacting businesses and their owners that will not sunset on December 31, 2025:

• Corporate Tax Rates: The corporate tax rate was previously 34% (35% for larger corporations) and was sharply cut to 21% under the TJCA, beginning in 2018. The corporate tax rate will remain at 21%.
• Bonus Depreciation: Bonus depreciation, pre-TCJA, permitted taxpayers to deduct 50% of the cost of qualified property. The TCJA increased this to 100%. However, the 100% bonus depreciation is already scaling back. As part of a special transition rule, the 100% depreciation dropped to 80% in 2023 and 60% in 2024. It will continue to scale back as such: 40% in 2025; 20% in 2026; and 0 in 2027.
• Section 179 Expensing: The Section 179 expensing provision allows certain property (generally not real property) to be directly expensed but with a cap on overall additions a company can make in a year. Prior to the TCJA, up to $500,000 could be expensed but was phased out if total additions in the year exceeded $2 million. The TCJA increased the eligible expensing amount to $1 million with a phase out beginning at $2.5 million of annual additions (these amounts are indexed for inflation each year). For 2024, the Section 179 expensing limit is $1,220,000, and the phase out threshold is $3,050,000.
• Research Expenditures: The TCJA required research expenditures to be capitalized and amortized over five years beginning in 2022. Research expenses incurred internationally must be amortized over 15 years. This legislation remains in effect.
• Interest Expense Deduction: Prior to the TCJA, business interest expense was generally deductible by the taxpayer. The TCJA changed this, imposing limitations on interest deductions to 30% of an individual’s taxable income before the interest expense deduction (this is called an “Adjusted Taxable Income,” or ATI). Prior to 2022, depreciation and amortization deductions could be added back to increase the ATI, but this is no longer available, making deducting interest expense more challenging.  

With these looming changes, we advise business owners to work closely with their tax consultants to prepare for these adjustments.

International Tax Provisions Set to Expire

The TCJA also significantly revamped a 30-year-old system by adding a more territorially focused approach to taxation and creating disincentives for U.S. companies to earn and hold more profits offshore. The TCJA imposed a mandatory repatriation tax on the undistributed Earnings and Profits (E&P) of U.S.-owned foreign corporations. It also eliminated the indirect Foreign Tax Credit (FTC), modified current Subpart F provisions, and introduced Foreign Derived Intangible Income (FDII), Global Intangible Low-Taxed Income (GILTI), and the new Base Erosion and Anti-Avoidance Tax (BEAT).

The following international tax regimes will sunset:

• Global Intangible Low-Taxed Income (GILTI) Inclusion: The TCJA introduced a GILTI income inclusion for U.S. shareholders, ultimately increasing a Controlled Foreign Corporation’s tax rate on income greater than certain routine returns. This established an effective tax rate of 10.5% for tax years ending before January 1, 2026. This increases to 13.125% for tax years beginning after December 31, 2025.
• Foreign Derived Intangible Income (FDII) Provisions: This provision imposes an effective tax rate of 13.125% on intangible income associated with Intellectual Property held in the U.S. for tax years ending before January 1, 2026. This rate increases to 16.4% for tax years beginning after December 31, 2025.

Special attention should be paid to GILTI and FDII provisions, as permissible deduction percentages for these provisions will decrease after 2025 and increase effective tax rates on GILTI- and FDII-related income for 2026 tax years and thereafter. These two regimes are most impactful on privately held U.S. businesses with international operations.

What Can Business Owners Do Now?

The impact of taxes on the cash flow of businesses and owners is significant. Business owners should consider their cash needs over the next three-to-five years for capital investment and expansion; changes in customer demand; economic uncertainty; debt retirement; possible M&A transactions; and owner succession; among other factors. Performing this business planning exercise, inclusive of tax planning, may reveal opportunities or the need for structural changes while awaiting more certainty from tax policy before 2026. It is important to model out the projected tax ramifications on a business under various assumptions – analytic tax advisors are key to this process.

The outcomes of the election later this year will provide some insight into tax policy changes in 2025 ahead of the scheduled expiration of TCJA tax provisions. The probability of simply extending the TCJA provisions without change is considered unlikely. Many tax proposals will be offered, but it is uncertain what may be adopted in 2025. If Congress makes no changes, these TJCA provisions will sunset and revert to 2017 rules.

For a deeper look into business provisions that will sunset (and those that won’t) with the TCJA expiration, please join our tax consultants for a webinar on August 14.

About our Authors

Jim Brandenburg, CPA, MST, possesses extensive experience and knowledge in corporate and partnership tax law, mergers and acquisitions, and tax legislation. His expertise includes working with owners of closely held businesses to identify tax planning opportunities and assist them in implementing these strategies.

Elena Mossina, J.D., LL.M., is the principal of Sikich’s International Tax practice. She is a tax attorney with experience in advising U.S. multinational clients on a wide range of international and domestic tax issues. Her experience includes cross-border restructurings, cash repatriation strategies, IP migrations and transfer pricing matters. She combines U.S. and foreign tax analysis to provide clients with the most advantageous integrated solution from a U.S. and a foreign tax perspective.

Tom Bayer, CPA, CExP, has specialized expertise in the areas of business succession planning, tax planning and compliance, and business advisory. He has deep experience providing a range of accounting, tax, and business advisory services to commercial clients across industries.