Get ready: The upcoming presidential and congressional elections may significantly alter the tax landscape for businesses in the United States. The reason is a tax law scheduled to expire in about 17 months and how politicians in Washington would like to handle it.
How we got here
The Tax Cuts and Jobs Act (TCJA), which generally took effect in 2018, extensively changed small business taxes. Many of its provisions expire on December 31, 2025.
As the law sunsets, you may be concerned about your business's future federal tax bill. The impact isn't clear because Democrats and Republicans have different views about approaching the various provisions in the TCJA.
Corporate and pass-through business rates
The TCJA cut the maximum corporate tax rate from 35% to 21% and lowered rates for individual taxpayers involved in non-corporate pass-through entities, including S corporations, partnerships, and sole proprietorships. Today's highest rate is 37%, down from 39.6% before the TCJA became effective.
However, while the individual rate cuts expire in 2025, the law made the corporate tax cut "permanent." (There's no scheduled expiration date, but tax legislation could raise or lower the corporate tax rate.)
In addition to lowering rates, the TCJA affects tax law in many other ways. One of the most significant changes for small business owners is the potential expiration of the Section 199A qualified business income (QBI) deduction. This is the write-off for up to 20% of QBI from non-corporate entities.
One of the expiring TCJA business provisions is the gradual phaseout of first-year bonus depreciation. Under the TCJA, 100% bonus depreciation was available for qualified new and used property placed in service in the calendar year 2022. It was reduced to 80% in 2023, 60% in 2024, 40% in 2025, 20% in 2026, and 0% in 2027.
Potential Outcomes
The outcome of the presidential election in three months and the balance of power in Congress will determine the TCJA's future. Here are four potential outcomes:
- All TCJA provisions scheduled to expire will expire at the end of 2025.
- All TCJA provisions scheduled to expire will be extended beyond 2025 (or made permanent).
- Some provisions of the TCJA will expire, while others will be extended (or made permanent).
- Some or all of the temporary TCJA provisions will expire, and new laws will be enacted, providing different tax breaks and/or rates.
How your tax bill will be affected in 2026 will partially depend on which one of these outcomes actually happens and whether your tax bill went down or up when the TCJA became effective years ago. That is based on several factors, including your business income, filing status, where you live (the SALT limitation negatively affects taxpayers in certain states), and whether you have children or other dependents.
Your tax situation will also be affected by who wins the presidential election and who controls Congress because Democrats and Republicans have competing visions about how to proceed. Remember that tax proposals can become law only if they pass both houses of Congress and are signed by the President (or if there are enough votes in Congress to override a presidential veto).
Look to the future
As the TCJA provisions get closer to expiring and the election gets settled, it's important to know what might change and what tax-wise moves you can make if the law does change. We can answer any questions you have, and you can count on us to keep you informed about the latest news.
