Tax Extenders and Tax Planning
With the certainty of the expiration of the Trump-era tax cuts after 2025, the new Congress will be faced with an extend-or-expire decision. In anticipation of upcoming issues, members of Congress are already contemplating a 2025 roadmap to address this and other issues.
Timeline for 2025
Numerous outlets have reported that during a recent Senate retreat, incoming Senate Republican leader John Thune outlined a possible roadmap for 2025 by discussing plans for two filibuster-proof bills. This includes an early-year bill involving border security, defense, and energy while saving the battle over expiring Trump-era tax cuts for later in the year.
**Breaking** Update on Beneficial Owner Reporting.
On December 3, the U.S. District Court for the Eastern District of Texas issued a preliminary injunction blocking the Treasury Department from enforcing the Corporate Transparency Act’s filing BOI filing requirements. This preliminary ruling applies nationwide. However, it must be noted that there is expected to be an appeal by the Treasury Department which leaves the matter in limbo.
What to do? For those who haven’t filed, at a minimum closely monitor these developments. It would also be prudent to consult with your tax advisor on the best course of action with regard to the BOI filing.
Tax Planning: SALT Cap Workaround
One of the few downsides to the 2017 Trump-era tax cuts is the $10,000 personal deduction limit for state and local taxes (SALT).
In response to this limit, many states developed a work-around solution for owners of pass-through entities (LLC, partnership, S-corporation). This concept allows a small business owner’s pass-through entity to pay the business owner's state tax and pass both the deduction and the tax payment credit through to the owner, in effect, by passing the individual SALT limit. Currently, over 30 states have this concept in place.
Expanded Overtime Rules Reversed
On November 15, 2024, a Texas federal court struck down an earlier U.S. Department of Labor (DOL) rule that expanded the amount of earnings subject to mandatory overtime-pay. This ruling reversed the DOL’s previous ruling and applies nationwide.
This issue has seemingly flown under the radar but has the potential to be a significant issue for affected small business owners. In April, the Department of Labor (DOL) raised the minimum amount exempted from overtime to $43,888 from $35,568 (beginning January 1, 2025) with a provision for future indexing of amounts. Why does this matter? By default, this increase would have raised the number of workers who qualify for mandatory overtime.
Overtime Rules? What Overtime Rules?
As a reminder, the federal overtime provisions are contained in the Fair Labor Standards Act (FLSA) and basically require overtime pay for work activity that exceeds 40 hours per week. There are two important exceptions to the overtime requirement: (1) Minimum Pay Exemption, which affects workers who earn above $35,568, and (2) Job Duty Exemption, which affects employees that perform certain types of executive, administrative, or professional duties. Those affected by these exemptions aren’t required to be paid overtime.
