The Tax Cuts and Jobs Act (TCJA) introduced many changes in late 2017, but many provisions were temporary, with an approaching expiration as early as January 1, 2026.
The good news is that not everything will change. One of the most significant and lasting changes introduced by the TCJA was the restructuring of the corporate tax rate. Prior to the TCJA, C-corporations faced a graduated tax rate structure with a top rate of 35%. The TCJA implemented a flat 21% tax rate, regardless of the amount of corporate taxable income. Unlike many other provisions of the TCJA, this change is permanent and will not expire at the end of 2025.
However, businesses will need to prepare for the provisions that are set to change, taking advantage of existing opportunities while they are still available.
In this article, we’ll briefly explore some of the major changes and provide actionable recommendations to help you prepare financially.
Qualified business income (QBI) deduction
The TCJA introduced a deduction of up to 20% of qualified business income for owners of passthrough businesses, including partnerships, S corps, and sole proprietorships. In 2026, passthrough business owners will no longer be able to claim this deduction.
Business owners of affected entities should consider strategies to maximize the use of the QBI deduction before it expires. This may include accelerating income into years where the deduction is still available. Also, speak with a tax advisor about ways to optimize business expenses and deductions in other areas to offset the increased tax burden once the QBI deduction is no longer available.
Bonus depreciation
Under normal depreciation rules, businesses must deduct the cost of new investments over a period ranging from 3 to 39 years, depending on the asset. However, the TCJA allowed for an additional first-year depreciation deduction, known as bonus depreciation. Between 2017 and 2023, businesses could take a 100% first-year deduction on qualified property. This change could also be applied to used property, which was a departure from previous rules.
This provision started phasing out in 2023, and currently, businesses can only take a 60% first-year depreciation deduction. In 2025, this will drop to 40%, and in 2026, the deduction will drop to 20%. After 2027, normal depreciation rules will apply.
To maximize tax benefits, plan significant purchases of qualified property to take advantage of the higher bonus depreciation rates before they phase out.
Opportunity zones
Opportunity zones were created under the TCJA to spur economic development and job creation in distressed communities by offering tax incentives to investors. Capital gains from investments in these zones can be deferred and excluded from income if specific requirements are met.
The ability to defer capital gains by investing in opportunity zones will expire after December 31, 2026. After this date, there will be no tax benefits available for new investments in opportunity zones.
Work with a tax advisor to understand the specific requirements and benefits of Opportunity Zone investments and to ensure that any investments made comply with IRS regulations to maximize the tax advantages before they expire.
Employer credit for paid leave
The TCJA introduced a business tax credit for wages paid to employees on family and medical leave. Employers can currently claim a credit of up to 25% of wages paid for up to 12 weeks of leave, provided the leave is not mandated by law. This credit encourages employers to offer paid leave benefits beyond what is legally required.
Starting in 2026, this tax credit will no longer be available.
Continue to take advantage of this credit while it is available, but consider how the loss of this credit will impact your business in the future. You may need to plan adjustments to manage these costs more effectively. Talk to a tax advisor about other tax-advantaged strategies to support employee well-being once this credit expires.
Fringe benefits exclusions
Not all of the impending changes are bad news for employers. Under the TCJA, employer-provided reimbursements for bicycle commuting and moving expenses are included in taxable income for employees (with the exception of moving expenses for the Armed Forces).
Beginning in 2026, the TCJA’s restrictions will expire, and these fringe benefits will once again be excluded from taxable income. Specifically, up to $20 per month for bicycle commuting expenses and all qualified moving expenses will not be subject to income or payroll taxes.
In the future, you may consider enhancing your employee benefits package by providing some of these fringe benefits. This may even help offset some of the losses experienced from other changes.
Limit on losses for noncorporate taxpayers
Under the TCJA, noncorporate taxpayers, such as sole proprietors, partnerships, and S crops, can generally deduct business losses from their taxable income. However, there is an annual limit on the amount of loss that can be deducted: $610,000 for married taxpayers and $305,000 for other taxpayers.
Starting in 2029, the limits on the deduction for business losses will be relaxed, enabling noncorporate taxpayers to offset more income.
Preparing for the post-TCJA landscape
As we approach the sunset of the TCJA, it’s crucial to consider how the upcoming changes might affect your tax planning and business strategies.
This article provides a brief overview of some of the key changes and potential benefits that businesses will encounter. However, it does not cover every possible recommendation or strategy.
For more detailed and personalized guidance tailored to your specific situation, please contact one of our expert advisors.
