Most of the individual tax cuts and tax increases were only put into the TCJA for 2018 through 2025. That is, the TCJA had expiration dates for many tax cuts and tax increases (such as the $10,000 SALT cap and disallowance of a deduction for home equity interest). It also had built-in tax increases with significant ones affecting businesses already in effect such and capitalizing R&D rather than expensing it and phasedown of 100% bonus depreciation.
I have a list of the temporary provisions as well as the tax increases that have already started and ones to start after 2025 at the end of this post. I also have track changes for some of the TCJA changes from this January 2018 blog post.
While we are hearing a lot about extending the individual and estate tax cuts, there are non-TCJA provisions that expire at the end of 2025 including the Work Opportunity Tax Credit, New Markets Tax Credit and enhanced Premium Tax Credit (PTC). For a list of all expiring provisions, see this JCT report issued every January - JCX-1-24 (1/11/24).
Will the expiring provisions all just be renewed including those that expired a few years ago (R&D, §163(j) formula, bonus depreciation at 100%)? Is this the best mix of tax changes for an effective tax law? For example, the disallowance of miscellaneous itemized deduction subject to the 2%-of-AGI floor is contrary to the operation of an income tax as these include expenditures to produce taxable income such as hobby expenses (up to hobby income), investment expenses and unreimbursed employee business expenses. There are easily over 50 tax expenditures that don't belong in the tax law that could be modified or eliminated to enable for permanent lower rates and an even higher child tax credit for low-to-middle income taxpayers. These include the mortgage interest deduction, exclusion for employer-provided health insurance and other fringe benefits (these could be reduced based on income level and subject to a cap), the higher standard deduction for the elderly or tie it to income, and more.
Will we see a discussion of what changes are best for economic growth? Items other than the expiring or expired provisions? We'll see.
What do you think?
List of expiring or expired provisions: (tax increases built into TCJA as enacted 12/22/17):
•
International Provisions:
•
tyba 12/31/25, deduction for GILTI reduced from
50% (10.5% US tax rate) to 37.5% (13.125% US tax rate)
•
tyba 12/31/25, FDII deduction reduced to 21.875%
(16.406% effective tax rate on FDII) compared to 37.5% deduction (13.125%
effective tax rate on FDII) for 2018 through 2025.
•
tyba 12/31/25, BEAT rate increases from 10% to
12.5%
• BEAT = Base Erosion and Anti-Abuse Tax (§59A and Form 8991)
•
Business Provisions:
•
§174 expensing converted to capitalization and
amortization for tyba 12/31/21.
•
100% bonus depreciation started to phasedown
starting in 2023 (80%), continuing to no bonus in 2027.
• §163(j) business interest expense became less taxpayer favorable starting for tyba 12/31/21. Prior to that time, add back depreciation, amortization and depreciation to adjusted taxable income (ATI) which is the limitation. Today, don’t add it back making ATI smaller.
•
§199A Qualified Business Income Deduction ends
after 2025.
•
§274(o) – no deduction for meals provided at
convenience of employer including for operating facility for the meals starting
for amounts paid or incurred after 12/31/25.
•
Individual Provisions:
•
It is a long list including of tax cuts and tax
increases. Temporary tax cuts included the higher standard deduction, $2,000
rather than $1,000 child tax credit, lowered brackets and a few others. Temporary
tax increases included disallowance of interest on home equity debt, no
deduction for miscellaneous itemized deduction subject to the 2% of AGI threshold,
the $10,000 SALT cap and others. See complete list from the JCT here.
