Business Tax Outlook: What Continuing TCJA Tax Provisions Could Mean for Your Company

What would these extensions mean for your business taxes? Let's explore the potential impact and how you can prepare strategically. 

Corporate Tax Rate Reduction: A Game-Changer for American Manufacturers 

While on the campaign trail, President Trump advocated for reducing the corporate tax rate from the current 21% to 15% for companies that manufacture their products in America. This targeted rate reduction to corporate taxes could significantly benefit businesses that keep production on American soil, potentially leading to higher profitability and increased competitiveness in global markets. 

For business owners, this potential rate reduction presents several opportunities: 

1. Investment planning: The prospect of lower tax rates could make capital investments more financially attractive, especially for manufacturing operations. 
2. Supply chain evaluation: Businesses currently manufacturing abroad might want to analyze the potential tax advantages of reshoring operations. 
3. Strategic timing of income and expenses: With potential tax changes on the horizon, business owners should consult with financial advisors about optimizing the timing of income recognition and deductible expenses. 

The Qualified Business Income Deduction: A Critical Tax Benefit for Pass-Through Entities 

One of the most impactful provisions for small and medium-sized businesses has been the Section 199A deduction, which allows eligible pass-through business owners to deduct up to 20% of their qualified business income. According to the American Farm Bureau Federation, more than 850,000 farms and ranches nationwide have enjoyed lower tax bills because of this provision, and its expiration could cause "the single largest tax increase for farm and ranch families in 2026." 

The good news is that "there appears to be bipartisan support in Congress for retaining the deduction as part of a broader TCJA extension package," according to analysis from the Penn Wharton Budget Model. This suggests that businesses structured as sole proprietorships, partnerships, and S corporations may continue to benefit from this valuable tax break. 

For business owners, the potential continuation of the QBI deduction: 

1. Preserves tax parity: The deduction helps level the playing field between pass-through entities and C corporations, which permanently benefited from the 21% corporate rate under TCJA. 
2. Affects business structure decisions: The potential extension of this deduction may influence whether maintaining pass-through status or converting to a C corporation is more advantageous for your business. 
3. Impacts retirement and succession planning: For business owners approaching retirement, the continuation of this deduction could significantly affect the after-tax income available during transition years. 

Business Interest Deductibility: Another Key Provision 

Another important TCJA provision facing expiration involves business interest deductibility. Before TCJA, businesses could generally deduct interest expenses in the year paid or accrued, with some limitations. If Congress fails to extend the current rules, the business interest deduction will revert to pre-TCJA standards. 

For businesses with significant debt financing or those considering taking on new debt for expansion or acquisitions, this could have substantial implications for their cost of capital and overall tax strategy. 

Economic Impact of TCJA Extensions 

The potential economic effects of extending TCJA provisions extend beyond individual businesses to the broader economy. The Tax Foundation estimates that permanently extending the expiring individual, estate, and business tax provisions would boost long-run economic output by 1.1 percent, wages by 0.5 percent, and create the equivalent of 847,000 full-time jobs. 

However, these extensions would come with fiscal implications. According to the Tax Foundation, extending the expiring 2017 TCJA provisions would decrease federal tax revenue by approximately $4.5 trillion from 2025 through 2034. This fiscal reality will likely shape the legislative debate over which provisions to extend and for how long.  

read more below

The Political Landscape 

The political dynamics around TCJA extensions are complex. According to Senate Finance Committee Ranking Member Mike Crapo, failure to extend key TCJA provisions would trigger "an over-$4 trillion tax hike on American families and businesses," with a significant portion falling on those making less than $400,000 per year. 

The debate over who benefits most from TCJA extensions is contentious, with economists noting that "who benefits depends on your frame of reference." While these political discussions will ultimately determine the fate of these provisions, business owners should focus on understanding the potential changes and planning accordingly. 

Strategic Business Planning in an Uncertain Tax Environment 

Given the uncertainty around which TCJA provisions will be extended and in what form, business owners should consider several strategic planning approaches: 

1. Scenario planning: Work with your financial advisor to model different tax scenarios and understand their impact on your business's financial position. 
2. Flexible investment strategies: Consider how potential tax changes might affect the return on investments in equipment, technology, or expansion. 
3. Business structure review: Evaluate whether your current business structure remains optimal under different tax scenarios. 
4. Succession and exit planning: For owners considering retirement or sale in the next few years, understand how changing tax provisions might affect your transition timeline and valuation. 
5. Cash flow management: Maintain sufficient liquidity to adapt to changing tax environments and potential temporary increases in tax obligations. 

Preparedness Is Key 

While the exact future of TCJA provisions remains uncertain, the likelihood of some form of extension for key business provisions appears strong. By understanding what's at stake and developing flexible strategies, business owners can navigate this period of tax uncertainty with confidence. But it will be imperative to start discussions about your tax strategy now, rather than waiting until the end of this year when options may be more limited. 

At WHZ Strategic Wealth Advisors, we believe that business tax planning should always be done proactively, working with a team of advisors who understand both the technical aspects of tax law and the strategic implications for your business. It should also be integrated with your overall business and personal financial strategy.  

Our Plan Well, Invest Well, Live Well™ process helps business owners navigate these changing tax environments while staying focused on their long-term goals. It’s a central pillar to our goal of helping our clients achieve "Absolute Confidence. Unwavering Partnership. For Life." For a comprehensive review of how potential tax changes could affect your business and personal financial strategy, contact us for a complimentary consultation at (860) 928-2341 or visit whzwealth.com.  

Authored by Principal/Managing Partner & Chief Strategist James Zahansky, AWMA®. AI may have been utilized for some research and initial drafting of this piece. Securities and advisory services offered through Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser. 697 Pomfret Street, Pomfret Center, CT 06259 and 392-A Merrow Road, Tolland, CT 06084, 860.928.2341. http://www.whzwealth.com These materials are general in nature and do not address your specific situation. For your specific investment needs, please discuss your individual circumstances with your financial advisor. WHZ Strategic Wealth Advisors does not provide tax or legal advice, and nothing in the accompanying pages should be construed as specific tax or legal advice.