Business Owners
At Vanderlex, we’re committed to helping businesses navigate the complexities of ever-evolving tax laws. As the Tax Cuts and Jobs Act (TCJA) approaches its sunset in 2025, construction business owners need to be proactive in preparing for significant changes that could affect their operations and profitability. Our team is here to guide you through these transitions, ensuring that your business is well-positioned to adapt and thrive.
Understanding the TCJA and Its Impending Expiration
The TCJA, enacted in 2017, brought sweeping changes to tax regulations for both individuals and businesses. While it introduced various benefits, many of these provisions are set to expire at the end of 2025. Without new legislation, several key tax breaks will revert to pre-TCJA levels, potentially impacting your construction business’s tax strategy and financial health.
Key Provisions at Risk
As we approach 2025, it’s crucial to understand which TCJA provisions are set to expire and how they might affect your business:
Top Individual Income Tax Rate: The top tax rate on ordinary income is scheduled to increase from 37% back to 39.6%. This change will impact business owners who operate as pass-through entities, as their business income is taxed at individual rates. Standard Deduction Reductions: The standard deductions, which were nearly doubled under the TCJA, will revert to lower levels. This could lead to higher taxable income for business owners who do not itemize deductions. Gift and Estate Tax Exemptions: The current exemption of $13.61 million will drop to $5 million (indexed for inflation). Construction business owners should consider estate planning strategies to mitigate potential tax liabilities. Section 199A Deduction: This valuable deduction allows pass-through entities to deduct up to 20% of qualified business income (QBI). If Congress does not extend this provision, it will expire after 2025, potentially increasing the tax burden on many construction businesses. Employer Credit for Paid Family and Medical Leave: The TCJA introduced a tax credit for employers who provide paid family and medical leave to their employees. This credit will also sunset in 2025, unless extended by new legislation. Bonus Depreciation: A critical provision for construction companies, bonus depreciation allows businesses to deduct a large percentage of the cost of eligible asset purchases in the year they are placed in service. The deduction rate has already begun to phase out and will decrease to 20% by 2026 before disappearing altogether. Strategic Moves to Consider
Given these impending changes, now is the time to re-evaluate your tax strategies. Finnovech recommends the following steps:
Accelerate Income With individual tax rates expected to rise, consider strategies to accelerate income before 2025 to benefit from the current lower rates. Review Tax Accounting Methods Analyze the tax accounting methods your business uses. For example, the accrual method could allow you to recognize revenue as soon as you bill for work, potentially aligning tax payments more effectively with revenue. Plan Asset Purchases If your business anticipates the need for new equipment or vehicles, consider making these purchases sooner rather than later to take full advantage of current bonus depreciation rates. You can also combine bonus depreciation with Section 179 deductions to maximize tax benefits. Estate Planning With the gift and estate tax exemptions set to decrease, now is a crucial time to engage in estate planning. Our team can help you develop strategies to minimize potential tax liabilities. Why Choose Finnovech?
At Finnovech, we are always on the side of our clients. We understand the unique challenges faced by construction businesses, and our experts are equipped with the knowledge and tools to help you navigate these complex tax changes. Our mission is to provide you with tailored, actionable advice that aligns with your business goals, ensuring your continued success in an uncertain tax landscape.
Take Action Today
The expiration of many TCJA provisions is fast approaching. Don’t wait until 2025 to adjust your tax strategy. Finnovech is here to review your current situation and help you implement the necessary changes to protect your business’s financial future. Contact us today to schedule a consultation with our team of experts. Let’s work together to safeguard your business against these impending tax law changes.