Unknown Fate of Trump Tax Cuts Gives Advisers a Chance to Shine

Regardless of the outcome of the 2024 presidential election, we likely will see significant tax legislation in 2025 or 2026 due to the expiration of the Tax Cuts and Jobs Act.

While some provisions were permanent, most of the individual income tax provisions are scheduled to sunset on Dec. 31, 2025. Some have already gone into effect, including the requirement to capitalize and amortize research and development expenses under tax code Section 174.

If Congress doesn’t renew the expiring provisions, it could be early 2027 before lawmakers take real action. With 2026 a midterm election year, the likelihood of inaction may increase, as both parties become more sensitive about giving the other any kind of political win. This environment can lead to legislation stalling out or morphing into something new, as with the Tax Relief for American Workers and Families Act earlier in 2024 or the transformation of the Build Back Better Act into the Inflation Reduction Act in 2022.

Taxpayers and practitioners have to decide whether to file in 2025 and amend later, or file extensions hoping for retroactively extended provisions. Planning for both an extension and expiration of TCJA provisions is the wisest move. In this aspect, tax practitioners can showcase their value to clients during uncertain times.

For example, clients with pass-through entities may wonder how to prepare for the end of the TCJA’s qualified business income deduction, which allows for deduction of up to 20% of QBI. Should they accelerate their business income to take advantage of the deduction before it expires? What if they’re already close to the income phase-out for the deduction? Some clients may even want to consider converting from a pass-through entity to a C corporation to take advantage of lowered corporate tax rates.

Practitioners will need to monitor federal and potential state changes. Clients with pass-throughs may also have questions about how the end of the TCJA could affect their decisions to use a state pass-through entity tax option. Should they continue using a PTET election once (or if) the SALT cap expires? Will their state even allow them to?

All business clients may want to consider whether it will make sense to purchase property that is eligible for bonus depreciation before the full expiration of the provision beginning in 2027. However, they will need to balance that with the requirement to place the property in service in the year in which the asset is purchased in order to qualify for the depreciation deduction. And for research and development expenses, clients may want to defer them to later years in expectation of the revival of full expensing under Section 174.

High-net-worth individuals may need to revisit their estate tax planning to take advantage of the TCJA’s doubled estate tax exemption before it sunsets. Certain steps may need to be taken to ensure gifts are considered “complete” before the end of the 2025. Clients also shouldn’t forget to take advantage of generation-skipping tax trusts if applicable.

The higher exemption for the individual alternative minimum tax is also slated to expire, and clients will be looking for ways to reduce their potential tax exposure there as well—particularly if the SALT cap increases or expires. Those taxpayers subject to the AMT aren’t allowed to deduct state and local taxes, but they can circumvent this limitation if they have a business that makes use of a state PTET election. These individuals may need to evaluate if accelerating income or delaying deductions to a different year would be beneficial, given both the lower AMT exemption and the increase of the highest tax rates back to 39.6%.

Clients may again need guidance on whether to file their returns or file for an extension. This caution can be especially prudent for partnerships, which may be subject to more stringent requirements when making changes to a previously filed return under the Bipartisan Budget Act audit system.

Many of the expiring provisions will require proactive planning. Practitioners should begin having these conversations as soon as possible to determine what course of action their clients should take.

For instance, they should be aware of any major purchases their business clients may be considering or any expected significant income increases. They may also want to revisit the entity’s structure if needed for these clients as well. For clients with research and development expenses, an analysis of whether to defer expenses in hopes of Section 174 being reinstated will be necessary as well.

Political winds can change quickly. What seems certain or far-fetched one month can suddenly lose all momentum or gain steam the next. Practitioners should vigilantly monitor tax legislation to cater to their clients’ situations and provide accurate and updated guidance.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.

Author Information

Sarah Adkisson is senior manager of tax publishing in EisnerAmper’s national office in New York.

Jeffrey Kelson is EisnerAmper’s national corporate tax group leader and a leader of services for the firm’s New Jersey office.

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