TAX HIGHLIGHT
7 Tax Planning Considerations Ahead of the TCJA Sunset
With several tax laws introduced as part of the Tax Cuts and Jobs Act ( TCJA ) expected to expire or fully sunset in 2025 , this year is crucial for individuals and businesses to explore tax planning strategies that may help reduce their overall tax bill .
Some good tax news came at the beginning of this year , as a bipartisan , bicameral deal between the U . S . House of Representatives and the Senate , dubbed the Tax Relief for American Families and Workers Act of 2024 , was announced . Although it has yet to pass , it does include some lucrative tax benefits , such as extending the child tax credit , allowing immediate research and development expense deductions and providing disaster relief , to name a few . This proposal would retroactively reverse several business-related tax changes from the TCJA , so companies with interest costs , capital expenses and research spending would all benefit .
As you plan for the year ahead , keep these key tax considerations in mind .
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QUALIFIED BUSINESS INCOME ( QBI ) DEDUCTION
Pass-through entities , including partnerships , limited liability companies , S corporations and sole proprietors , can deduct up to 20 % of its QBI . This is subject to certain limitations based on W-2 wages paid , the unadjusted basis of qualified property and taxable income . This deduction is set to expire in 2025 , so qualifying entities should take advantage of this tax-savings opportunity while they still can .
BONUS DEPRECIATION
This deduction is scheduled to decrease to 60 % for the 2024 tax year and decreases by 20 % each subsequent year through 2027 , under the current phase-out schedule . The current bipartisan framework proposes to extend 100 % bonus depreciation through 2025 . Regardless of the legislative outcome , it is still a worthy tax benefit for businesses that own machinery , computer systems , software , certain vehicles , equipment or office furniture , to name a few . Also of note , the Inflation Reduction Act of 2022 included a tax credit allowing companies that look to install solar panels or purchase electric vehicles to reap the benefits of both bonus depreciation and energy tax credits .
ESTATE TAX AND GIFT TAX EXEMPTIONS
The annual exclusion and tax exemptions increased for calendar year 2024 , with the gift tax exclusion increasing to $ 18,000 , and the estate and gift tax exemption to $ 13.61 million ( both adjusted for inflation ). The exclusion is the amount you may give each year without depleting any of your gift and estate tax exemption . The gift and estate tax exemption is the amount you can transfer without being subject to a 40 % tax . Both exemptions are expected to return to $ 5 million in 2026 , so it ’ s critical for taxpayers to not delay their estate and gift tax planning .
08 | VIEWPOINTS : ISSUE 1 2024