With the 2024 tax season in the rearview, now is the time for businesses to look ahead—and for many, 2025 presents a critical turning point. Key provisions from the 2017 Tax Cuts and Jobs Act (TCJA) are set to expire at the end of the year, creating what many are calling “tax cliffs” that could significantly impact pass-through businesses, corporate investments, and long-term planning. Below, we break down what’s changing, why it matters, and how businesses can proactively prepare.
The Qualified Business Income (QBI) Deduction Set to Expire
One of the most widely used TCJA provisions, the 20% deduction for Qualified Business Income (Section 199A), is currently set to expire after 2025. This deduction allows owners of pass-through entities (such as S corporations, partnerships, and sole proprietorships) to deduct up to 20% of their qualified business income—substantially reducing their effective tax rate.
Why it matters: If Congress does not act, pass-through owners could face a sizable tax increase beginning in 2026. For many closely held businesses, this could mean re-evaluating their current entity structure, tax exposure, and compensation strategies.
Planning Consideration: Now is the time to model scenarios with and without the QBI deduction in 2026 and discuss with a CPA whether an entity restructuring could provide better long-term tax positioning.
Bonus Depreciation is Phasing Out
The TCJA allowed businesses to immediately expense 100% of qualified property (primarily equipment and certain improvements) placed in service, but that benefit has begun to phase down. In 2025, bonus depreciation drops to 40%, and by 2027, it will be completely phased out.
Why it matters: For capital-intensive businesses—especially in manufacturing, construction, and distribution—the decline in immediate expensing can affect purchasing decisions, cash flow, and tax liability.
Planning Consideration: Companies expecting to invest in equipment or make major capital improvements should consider accelerating purchases into 2025 where possible to benefit from the 40% deduction.
R&D Expense Amortization Continues
Under the TCJA, beginning in 2022, businesses are required to amortize domestic research and development (R&D) expenses over five years, rather than immediately deducting them. This rule remains in place for 2025.
Why it matters: The change has increased taxable income for many businesses engaged in product development, technology, or innovation-heavy work—especially those that previously relied on the immediate deduction.
Planning Consideration: Businesses should ensure they are accurately tracking qualified R&D expenses, evaluating the impact on their tax position, and leveraging any available R&D tax credits to help offset the amortization burden.
What’s Next? Legislative Outlook
While many in the business community are hopeful that Congress may extend some of these provisions, political uncertainty heading into the 2026 sunset makes it risky to assume extensions will occur.
Key Insight: Businesses should plan under the assumption that current expirations will take place, with contingency strategies in place if extensions occur.
Proactive Steps for 2025
- Run multi-year tax projections with your CPA to understand how expiring provisions could affect your bottom line.
- Evaluate major purchases or capital expenditures with bonus depreciation in mind.
- Assess entity structure and compensation strategies in light of a potential QBI deduction loss.
- Take full advantage of current tax credits—including R&D credits—to soften the impact of amortization.
- Stay engaged with tax advisors and policymakers as legislation develops throughout 2025.
Final Thoughts
While tax filings may be behind you for now, mid-year is the perfect time to shift into forward-looking strategy. With multiple TCJA provisions expiring soon, smart planning in 2025 could make a significant difference in your 2026 tax bill and overall financial health. Connect with your CPA now to ensure you’re well-positioned for whatever comes next.
Capossela, Cohen, LLC provides strategic tax planning services to help businesses navigate complex legislative changes with clarity and confidence. Click here for more information on our services.