Year-End Tax Planning and 2025 Expiring Tax Breaks
Year-End Tax Planning and 2025 Expiring Tax Breaks
With the election cycle over, attention now moves toward early next year and the enormous number of Trump-era tax breaks that are set to expire at the end of 2025. It also clears the way for year-end tax planning opportunities and education. The following is a list of the most common questions we have received from our members.
When Do the 2017 Tax Cuts and Jobs Act’s (TCJA) Tax Cuts Officially Expire? The overwhelming majority of tax cuts expire on December 31, 2025.
Has Bonus Depreciation Expired? No. This has been a subject of confusion for small business owners. Bonus depreciation has not expired, but it is in the process of phasing down from the historical 100% level. For 2024, 60% of qualifying business asset purchases can be immediately expensed using bonus depreciation and is decreasing by 20% each year.
Because bonus depreciation was part of the 2017-TCJA, it will be addressed in the 2025 Congress as part of the overall issue of expiring tax breaks.
Is Sec. 179 Business Expensing Still in Play? Yes. Prior to bonus depreciation, Sec. 179 equipment expensing was the historical business equipment expensing mechanism used to immediately deduct equipment purchases.
Although Sec. 179 expensing has somewhat taken a back seat to bonus depreciation, it is still available and has become more important given the phase-down of bonus depreciation. For 2024, the maximum business equipment purchases write-off using Sec. 179 expensing is $1,220,000.
Is the 20% Small Business Pass-through Deduction Still Available? Yes. As with bonus depreciation, the small business pass-through deduction was an important part of the 2017-TCJA and has become one of the more useful tax breaks for small business owners. This deduction is available to pass-through entities such as LLC, S-Corp, partnerships, and sole-proprietors. It, in general, generates a deduction of 20% of net small business income. This tax break is also set to expire at the end of 2025.
Are the Lower Individual Tax Rates Still in Play for 2024? Yes. The lower rates for individuals are still in effect through the end of 2025. Because most small business owners operate in a “flow-through” entity, the lower tax rates for individuals are a significant portion of tax planning and will be addressed in the 2025 Congress.
Lower Capital Gains Rates: This issue was the subject of much conversation during the recent election cycle. The lower capital gains rates are still in effect for 2024 and 2025 and generally carry a much lower rate than the regular individual income tax rates. The current rates are 0%, 15%, or 20% based on a taxpayer’s income level.
Reminder: Up to $3,000 of net capital losses can be deducted against income. Any excess can be carried forward to succeeding years.
Are the Higher Estate Exemption Amounts Still in Effect? Yes. The exemption amounts represent the amounts that can be gifted or left to survivors free from the estate tax. The larger exemption amounts are available for 2024 and 2025 at over $13 million per person.
Update: FinCEN Beneficial Owner Reporting (BOI): In early November, 44 members of Congress sent a formal request to the Treasury Department and FinCEN to consider a delay in the BOI filing deadline noting concerns about complexity and limited business owner awareness. Small business awareness continues to be a major problem. To date, an estimated 6.5 million reports have been filed out of the expected 30 million. Nevertheless, as we wait for a response, the filing deadline of December 31st is still intact.
