“Yesterday is gone, tomorrow has not yet come. We have only today, let us begin.” ~ Mother Teresa
Many of the tax rules that were put in place through prior legislation are now being questioned (yesterday). The new Administration and new Congress have big plans for the future (tomorrow). But businesses have to operate under existing tax rules (today). It’s essential for small business owners to stay alert to possible tax changes that could be beneficial and may require some quick action.
How can you handle tax changes?
Take a multi-year approach to tax planning
There is still time for businesses to engage in year-end tax planning to optimize their tax bill for the current year and favorably position themselves for next year. This traditional tax planning strategy is very difficult due to the uncertainty of tax rules for 2025. Here’s my take: Many of the provisions in the Tax Cuts and Jobs Act of 2017 (TCJA) are set to expire at the end of 2025. Therefore, I’m betting we won’t see legislation—to extend most or all of those provisions—until later in 2025 (probably the fall of 2025). This means the rules in effect now will continue through 2025.
So, what does this mean? Decide from a business perspective your best course of action, recognizing that taxes are only one factor, albeit important. For example, if your business needs a big piece of equipment, should you get it in 2024 or wait until 2025? What to ponder:
- How important is the equipment to your business? Will it, for example, begin to generate new revenue immediately or produce energy cost savings?
- Can you place it in service before the end of the year to take advantage of tax write-offs now? Simply putting in an order for it is not enough.
- What are the financing costs? Do you anticipate interest rates dropping sufficiently for this factor to make a difference in your decision.
Monitor tax legislation
While the saga of TCJA continues, there could be additional tax legislation—now or in 2025. New tax rules may present new opportunities for tax savings. For example, a new law could introduce incentives for manufacturers in the U.S. (made in the U.S.A.).
On the flip side, some current rules may be jettisoned. For example, some energy-related tax breaks may be repealed. Consider taking advantage of them now if this is a good business decision for you.
Stay in contact with your tax adviser
Some legislation may enable you not only to benefit going forward, but may enable you to file amended returns and recoup prior tax payments. For example, a lame duck bill enacted in the final weeks of the current Congress could create refund opportunities through:
- Reinstating the 100% bonus depreciation rule. Currently, only 60% is allowed. For 2023, 80% was allowed. If full bonus depreciation comes back retroactively, 2023 returns can be amended where desirable.
- Reinstating expensing for research and experimentation expenditures. Currently, such costs must be amortized over 5 years. This amortization rule tool effect in 2022. Before then, the costs could simply be expensed (deducted in full) in the year they were incurred. Again, if a retroactive change is made, it may be possible to file amended returns for 2022 and/or 2023 where applicable.
Hopefully, your tax adviser will let you know what actions to take in order to benefit from any new legislation.
Final thought
What the current and future tax picture suggests is the need for business owners to remain on top of things so they can make the best business decisions possible under the circumstances. It also means business owners must be nimble enough to adapt to continual changes in tax rules. I’ll be monitoring tax changes, so stay tuned.
Read more concerning business-related tax legislation in this list of blogs here.
