The following article appeared for the first time in The Insights section From the JP Morgan Private Bank website. He is republished here with permission.
The Republicans took control of the White House and the two Congress Chambers during the November elections, business owners focus on the potential changes in tax legislation.
Many provisions of the law on tax reductions and 2017 jobs should expire after December 31, 2025.
President Donald Trump campaigned to make these arrangements permanent, but with a thin republican majority at the congress and high projected deficits, this can be difficult politically and financially.
Understand budget reconciliation
The most likely route for Republicans to extend the provisions of TCJA is the process of budget reconciliation.
This legislative procedure allows certain bills linked to the budget to adopt with simple majorities both in the House and the Senate, bypassing the threshold of 60 vote required to overcome an obstacle of the Senate.
In this case, reconciliation gives the Republicans a strategic advantage, because it allows them to adopt tax legislation without any support of the Democrats.
However, to extend the expired provisions of TCJA, republicans will have to make difficult compromises to comply with the procedural limits and manage the tax implications of any legislation.
Key provisions for business owners
As the expected expiration of many provisions of TCJA would negatively affect many business owners, here are the problems that our business owners have posed the most:
1 and 1 Amounts of exclusion from the tax on gifts: In 2024, individuals can transfer up to $ 13.61 million ($ 27.22 million for married couples) without incurring taxes on gifts or successions. This amount will increase in 2025 to $ 13.99 million per individual and $ 27.98 million for married couples, but should return to pre-TCJA levels after that-in myself because of current exclusions.
We advise business owners to examine their inheritance plans before these amounts of exclusion for life potentially decrease. We have long suggested that our customers give wealth to future generations, whether they are pure and simple or with confidence, as long as they can afford it and think that it is a good idea. This is true, no matter how tax laws can change. Giving wealth to future generations can also offer strategic advantages, because the future appreciation of these assets would not be subject to inheritance tax. We soon recommend consulting lawyer lawyers and business assessors because they are likely to be occupied in 2025.
2 Bonus amazing: In recent years, many business owners have taken advantage of the damping of temporary premiums to immediately spend significant parts of the cost of new and used eligible commercial assets, such as machines, equipment and vehicles, which are “placed in service”. In 2024, business owners can depreciate 60% of the cost of these assets.
In the coming years, the eligible amount should decrease 20% per year until it extends by 2027. Trump wishes to extend the bonus depreciation law and, at the beginning of 2024 have retroactively Restored a 100% bonus depreciation for certain commercial properties placed in service. The bill died in the Senate.
Business owners should determine whether it is logical to acquire and place qualified professional goods to take advantage of current bonus depreciation rates.
3 and 3 Deduction of qualified business income: For owners of assassination entities – including partnerships, S companies and ignored entities – the QBI provision offers a 20% deduction to individual owners with a national “business income”. This effectively reduces the highest tax rate on business income from 37% to 29.6%.
The QBI deduction is complex and can be limited to taxpayers with high income based, in part, on W-2 wages of a qualified company. Trades or “specified service” companies are generally not eligible for the deduction; However, owners of “specified service” companies with taxable income below the threshold amounts are excluded from this prohibition.
Republicans will probably be motivated to extend this provision to avoid a significant increase in tax rates for many owners of passing entities. The future of this provision will be essential for many business owners who currently benefit from the deduction.
4 Salt deduction caper and alternative minimum taxes: The state and local tax deduction ceiling limits the amount of state and local taxes that taxpayers can deduct from their American taxable taxable income. Until the end of 2025, the deduction was capped at $ 10,000 for single declarants and married couples jointly.
In response, many states have promulgated Salt Cap Savoule for owners of passing entitiesallowing them to indirectly deduce state and local taxes beyond the $ 10,000 ceiling. Almost all 41 states with state income tax have promulgated laws allowing adoption entities to pay these taxes at the level of the entity. If sunsets, taxpayers could once again deduce state and local taxes greater than $ 10,000, subject to other potential limitations of deductibility.
The interaction between the salt deduction ceiling should be noted and the minimum alternative tax. AMT is a parallel tax system designed to ensure that high income people pay a minimum level of tax. TCJA has considerably reduced the number of taxpayers affected by the AMT, but if the AMT system returns to full in 2026, as expected, many taxpayers monitoring the possibilities around the complete potential catering of the salt deduction must be aware that The deduction of salt is fully prohibited under the AMT system.
Trump and the members of the high -income tax congress on both sides of the aisle expressed their support for the increase in the salt deduction ceiling, if not entirely eliminating it. If the TCJA was extended, a certain limitation could still be necessary to compensate for the cost of other tax reductions. Given the uncertain resolution of this problem, if you are assigned by the salt deduction ceiling or the tax on the entities of your state, you must consider the impact of any potential change for the United States or the legislation of the state beyond 2025.
Additional items that we look at
It is possible that certain provisions expired by TCJA are modified instead of extension as is. The Congressional Budget Office estimates that a complete TCJA extension would cost around $ 4.6 billions over 10 years. This substantial cost may require a balanced approach to tax policy, which potentially requires compromises in other areas to manage budgetary and economic impact.
Potential tax legislation affecting business owners could extend beyond the provisions of TCJA. For example, Trump has mentioned the elimination of taxes on overtime and social security remuneration services, as well as taxes for restaurant workers and hotel workers. He also proposed to reduce the tax rate of companies for national manufacturers, which is currently 21%, up to 15%.
If these arrangements were promulgated and many dispositions expired by TCJA were prolonged, the American government’s revenues would drop – perhaps hurriedly. To replace lost income, the president proposed to impose General prices on all imported goods. It remains to be seen whether the prices would be carried out unilaterally or in conjunction with the congress.
In addition to the provisions of TCJA, any significant tax legislation is likely to provide existing provisions in the conversation. Business owners must remain informed of the discussions concerning the immediate expenditure of research and development expenses, areas of skilled opportunities and more generous limits of the deductibility of commercial interests.
These potential changes may have large -scale implications for strategic planning and financial management within their organizations. As the legislative landscape is evolving, remaining vigilant and adaptable will be essential for business owners who sail by these potential changes in tax policy.
About authors: Adam Ludman is responsible for the tax strategy and executive director and member of the private advisory management team of JP Morgan. Andrew Oshman is Executive Director and Senior Advisor at Private Business Advisory. Ajit George is an executive director with a private commercial opinion. Cheyenne del Savio is a main partner with Advisory Business Private.