February 19, 2025
For business owners, tax planning is more critical than ever. With the phase-out of certain tax benefits and possible changes to the Tax Cuts and Jobs Act (TCJA), understanding your tax obligations and opportunities can help you maximize savings.
Qualified Business Income (QBI) Deduction
The QBI deduction (Section 199A) allows pass-through businesses (S-Corps, partnerships, sole proprietorships) to deduct up to 20% of qualified business income. However, specified service businesses (such as consulting and accounting firms) may face phase-out limits.
Depreciation and Cost Recovery
- Bonus Depreciation: Once at 100%, it has now dropped to 60% in 2024 and will continue to phase out by 20% each year until it disappears in 2027.
- Section 179 Deduction: Allows for full deduction of eligible property, but unlike bonus depreciation, it cannot create a loss.
State Pass-Through Entity (PTE) Taxes
With the SALT deduction cap at $10,000, many states have introduced pass-through entity taxes as a workaround. These taxes allow businesses to pay state taxes at the entity level, providing a deduction at the federal level. However, with the potential elimination of the SALT cap in 2026, the long-term benefit of this strategy remains uncertain.
Excess Business Loss Limitations
Business owners must be aware that losses exceeding set thresholds cannot be deducted in full and instead must be carried forward. This rule is in place until at least 2028.
What to Watch for in 2025 and Beyond
Bonus depreciation fully phases out by 2027.
QBI deduction is set to expire after 2025, barring legislative action.
State-level PTE taxes may change if the SALT deduction cap is removed.
Potential reduction of corporate tax rates or further business tax incentives.
GRF Can Help
With tax law changes looming, business owners should proactively review their tax strategies. Taking advantage of available deductions, depreciation rules, and tax credits can help optimize your tax position. Work with your tax advisor to ensure you’re prepared for what’s ahead.
