Many of the business-friendly tax credits from the 2017 Tax Cuts and Jobs Act (TCJA) are scheduled to expire at the end of 2025 (absent any legislative action, that is). Tax credit sunsets will impact millions of small business owners who have been relying on these credits to keep operations manageable and costs down. But will 2024 election results have an impact on the scheduled expiration of the TCJA at the end of 2025?
Will Congress extend the credits?
Extending these credits is costly; the Tax Foundation estimates it would add around $4 trillion to the deficit between 2025 and 2034. Congress has yet to reach an agreement, and the expiration remains a politically divisive issue, with some policymakers calling for smaller tax credit extensions instead of a full renewal.
The current Republican leadership is likely to extend parts of the TCJA beyond its original 2025 expiration. However, changes are expected based on Congress’s updated priorities and new tax proposals promised by President-elect Trump during the 2024 campaign. Some parts of TCJA could stay as they are, while others could be adjusted.
What’s certain is that a new tax bill will be introduced by 2025. While it may not bring changes as dramatic as the TCJA did in 2017, it could still impact your tax planning. Since no clear extension plan exists yet, it’s crucial to know which credits and deductions might end and how these changes could affect your business.
You may also be interested in: The Best Tax Deductions and Tips for the Self-Employed
The 20% pass-through deduction (Section 199A)
The Section 199A deduction is one of the most significant TCJA benefits for small businesses. It allows many pass-through entities—such as sole proprietorships, partnerships, S corporations, and LLCs—to deduct up to 20% of qualified business income (QBI). Without an extension, the 199A deduction will expire in 2025, creating a potential tax increase for pass-through entities.
A survey by the Small Business Majority in August found that about 64% of small businesses take advantage of the 20% pass-through deduction. It has been especially valuable for businesses earning less than $200,000 in adjusted gross income, which make up about 77% of those claiming this benefit.
Further reading: Tax implications of business legal structures
Additional business tax credits set to sunset in 2025
Beyond Section 199A, several other TCJA provisions benefiting small businesses are set to expire thanks to automatic sunset dates.
Corporate income tax rate
The TCJA lowered the corporate income tax rate from 35% to 21%. This reduction helped many smaller corporations reinvest earnings and remain competitive. If the tax rate increases, businesses may see higher costs and potentially pass those along to consumers.
Paid family leave credit
The credit for employers who provide paid family and medical leave will also sunset in 2025. This benefit has allowed businesses to offer more competitive benefits without a financial hit.
Business interest expense deduction
The interest expense limitation (30% of adjusted taxable income) was loosened under the TCJA to use EBITDA (earnings before interest, taxes, depreciation, and amortization) as a benchmark. Starting in 2026, the calculation reverts to EBIT (excluding depreciation and amortization), making the limitation stricter, which could limit growth for businesses relying on loans for expansion.
Bonus depreciation for equipment
Under TCJA, businesses could immediately deduct 100% of the cost of qualifying equipment and vehicle purchases. However, bonus depreciation has been phasing out and will reduce to 60% in 2024, with a full phase-out by 2027. For businesses needing to upgrade equipment, the phase-out will reduce the immediate tax savings.
You may also be interested in: Tax Planning Checklist: Essential questions to discuss with your advisor before year-end
What TJCA provisions are NOT expiring?
Some of the TCJA provisions not sunsetting include:
- The $500,000 (inflation-adjusted) cap on excess business losses for individuals
- Net Operating Loss (NOL) Limitations can offset only up to 80% of taxable income, with no carrybacks allowed but indefinite carryforwards permitted
- Businesses must amortize Section 174 R&D expenses over five years instead of deducting them immediately.
- The Section 163(j) deduction for interest expenses is capped at 30% of adjusted taxable income (ATI), calculated without adding back depreciation or amortization
Small business advocacy for tax credit extensions
Organizations such as the U.S. Chamber of Commerce and local business groups are advocating for an extension of these tax credits, emphasizing that tax increases would directly affect small business profits, consumer prices, and employee wages. These groups argue that losing these credits would slow down innovation and hurt Main Street businesses more than large corporations.
Facing a high business tax burden? State entity-level taxation may help
What the TCJA sunset means for small business owners
If Congress does not act, small businesses should prepare for a possible increase in their tax obligations starting in 2026. Many may need to adjust pricing, delay investments, or revisit hiring plans. Business owners can still make the most of existing tax credits through the 2025 tax year and consult with a tax advisor to explore other tax-saving strategies.
Takeaway: Now is a good time to assess your business’s financial and tax situation and determine how expiring credits could affect your bottom line. Working with your tax advisor can help you minimize the impact of the tax credit sunset, navigate potential tax hikes, and adjust your strategy as needed to keep your business in a strong financial position for the future.