What Do Business Owners Need to Do Before the Tax Cuts and Jobs Act Provisions Sunset

The Tax Cuts and Jobs Act (TCJA) includes provisions set to expire by the conclusion of 2025. Acting promptly is essential, as seizing the current advantageous lower tax rates necessitates timely action.

Among its provisions, the TCJA initiated substantial and enduring tax reductions for corporate profits. Simultaneously, it lowered individual tax rates by restructuring tax brackets, nearly doubling the standard deduction from $13,000 to $24,000, uncoupling the income threshold for capital gains taxes from ordinary income tax brackets to favor higher-income individuals, and effectively doubling the lifetime gift and estate tax exemption from $5.6 million to $11.2 million. However, these ostensibly “non-permanent” alterations are scheduled to expire on December 31, 2025, reverting to pre-TCJA levels approximately half of the current rates.
For taxpayers with taxable estates surpassing the exclusion amount who pass away through 2025, a federal tax rate of up to 40% may apply. Additionally, some states impose estate taxes, potentially reducing estates to less than 60% of net assets after settling estate tax obligations.

Business owners must consider the implications of these changes on their financial plans. As the tax provision sunsets at the end of 2025, halving the exclusion, individuals with substantial estates exceeding the impending exclusion amount should promptly consult tax advisers and estate attorneys. Leveraging the temporary increase in the exclusion provided by the TCJA through making gifts before 2025 concludes is advisable.

Various planning opportunities exist to minimize income taxes and prepare for the expiration of TCJA estate and gift tax provisions, irrespective of whether the basic exclusion amount reverts to pre-TCJA levels. Strategies include transfers to family members by maximizing applicable discounts, utilization of one spouse’s lifetime exemption, implementation of a Spousal Lifetime Access Trust (SLAT), establishment of a Grantor Retained Annuity Trust (GRAT), and the adoption of income tax planning strategies.

Given the evolving tax landscape and the ongoing debate over the future of these provisions, a proactive approach to planning is essential. Both individuals and businesses should prepare for the potential expiration of TCJA provisions, recognizing the uncertainty surrounding whether Congress will extend or allow them to lapse. Commencing planning now is the prudent course of action.