estate tax exemptions are both expected to return to $ 5 million in 2026 , so it ’ s critical for taxpayers to not delay their estate and gift tax planning .
4 . State and Local Tax ( SALT ) Limitation
The TCJA put a $ 10,000 cap on the SALT deduction for taxpayers who itemize their returns through 2025 . Previously , there was no limit on this deduction , which allows taxpayers to deduct property , income and sales tax . With the limitation in mind , it ’ s important to evaluate whether to deduct sales tax versus income tax when itemizing deductions , depending on where you reside or if you ’ ve purchased any major items this year . There has been proposed legislation to repeal the $ 10,000 limitation , so be on the lookout for this as we approach the year-end .
5 . Section 163 ( j ) Business Interest Expense Deduction
This deduction reverted to its TCJA rules this year , which imposes a limitation on the deduction and removes the add-back of depreciation , amortization and depletion in the adjusted taxable income ( ATI ) calculation . Under Section 163 ( j ), the amount of deductible business interest expense in a taxable year cannot exceed the sum of the taxpayer ’ s business interest income , 30 % of the taxpayer ’ s ATI and the taxpayer ’ s floor plan financing interest . Taxpayers with average annual gross receipts of $ 25 million or less ($ 29 million for 2023 ) for the three previous tax years are generally exempt from the limitation .
The Coronavirus Aid , Relief , and Economic Security ( CARES ) Act temporarily increased the interest expense deduction limit to 50 % of ATI for the 2019 and 2020 tax years , so work with your tax advisor to ensure you ’ re making the proper tax elections related to your business activity moving forward .
6 . Section 174
This tax code was amended under the TCJA and removed the option to expense research and experimental ( R & E ) expenditures in the year paid or incurred . Instead , taxpayers are required to capitalize and amortize domestic research expenditures over a five-year period ( 15 years for foreign expenditures ), for amounts paid in tax years starting after Dec . 31 , 2021 . The amended code also specifies that amortization will begin with the midpoint of the taxable year in which expenses are paid or incurred , creating a significant impact on taxpayers .
Another major change in the rule is classifying software development costs as R & E expenditures under Section 174 , subjecting them to the same mandatory amortization periods . With these capitalization requirements in mind , it ’ s important to properly identify R & E expenditures incurred within your business . The IRS recently issued Notice 2023-63 , which offers some much-needed guidance on how to navigate the treatment of R & E expenditures under Section 174 for taxable years ending after Sept . 8 , 2023 , which is the effective date of the notice .
7 . Net Operating Loss ( NOL ) Limitation
The TCJA significantly changed the NOL rules , limiting NOL incurred after Dec . 31 , 2017 , to 80 % of taxable income ( previously 100 %) and disallowing NOL carrybacks . However , the TCJA allows NOL to be carried forward indefinitely . An NOL carryforward allows taxpayers to move a tax loss to future years to offset a profit , which can be beneficial from a tax planning perspective . The NOL would be even more valuable if the tax rates go up as outlined in the 2024 Revenue Proposals of the Biden Administration .
Unsure which of these tax incentives or deductions apply to you ? We encourage you to conduct year-end tax planning to evaluate your current tax position and identify ways to optimize it , plus help minimize your overall liability . Contact us today to obtain assistance with your tax planning needs . ■
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