Tax policy in focus: Post-election insights for business owners

With Republicans gaining control of the White House and both chambers of Congress in November’s elections, business owners are focused on potential changes to tax legislation. Many provisions of the 2017 Tax Cuts and Jobs Act (TCJA) are scheduled to expire after December 31, 2025. President-elect Trump campaigned on making those provisions permanent, but with a slim Republican majority in Congress and high projected deficits, doing so may prove challenging politically and financially.

Understanding budget reconciliation

The most likely path for Republicans to extend any TCJA provisions is through the budget reconciliation process. This legislative procedure allows certain budget-related bills to pass with simple majorities in both the House and Senate, bypassing the 60-vote threshold required to overcome a Senate filibuster. In this case, reconciliation gives Republicans a strategic advantage, as it enables them to pass tax legislation without any support from Democrats. However, to extend expiring provisions of the TCJA, Republicans will have to make difficult trade-offs to comply with procedural limitations and manage the fiscal implications of any legislation.

Key provisions for business owners

As the scheduled expiration of many provisions of the TCJA would adversely affect many business owners, here are the issues our business owner clients have asked about the most:

1. Gift and estate tax exclusion amounts: In 2024, individuals can transfer up to $13.61 million ($27.22 million for married couples) without incurring gift or estate taxes. This amount will increase in 2025 to $13.99 million per individual and $27.98 million for married couples, but is scheduled to revert to pre-TCJA levels after that—roughly halving the current exclusions.

We advise business owners to review their estate plans before these lifetime exclusion amounts potentially decrease. We have long suggested that our clients give wealth to future generations, whether outright or in trust, as long as they can afford it and think it’s a good idea. This holds true no matter how tax laws may change. Gifting wealth to future generations can also offer strategic benefits, as future appreciation on these assets would not be subject to estate tax. We recommend consulting estate planning attorneys and business appraisers soon, as they are likely to be busy in 2025.

2. Bonus depreciation: In recent years, many business owners have taken advantage of temporary bonus depreciation to immediately expense significant portions of the cost of new and used qualifying business assets, such as machines, equipment and vehicles, that are “placed in service.” In 2024, business owners can depreciate 60% of the cost of these assets. In future years, the eligible amount is scheduled to decrease 20% annually until it phases out by 2027.¹ President-elect Trump would like to extend the bonus depreciation law, and in early 2024 the Republican-led House passed a bipartisan bill that included a provision that would have retroactively restored 100% bonus depreciation for certain business property placed in service. The bill died in the Senate.

Business owners should consider whether it makes sense to acquire and place in service qualified business property to take advantage of current bonus depreciation rates.

3. Qualified business income (QBI) deduction: For owners of pass-through entities—including partnerships, S corporations and disregarded entities—the QBI provision offers a 20% deduction for individual owners with domestic “qualified business income.” This effectively reduces the top tax rate on pass-through business income from 37% to 29.6%. The QBI deduction is complex and may be limited to high-income taxpayers based, in part, on W-2 wages of a qualified business. “Specified service” trades or businesses are generally ineligible for the deduction; however, “specified service” business owners with taxable income below the threshold amounts are excepted from this prohibition.², ³

Republicans will likely be motivated to extend this provision to avoid a significant tax rate increase for many owners of pass-through entities. The future of this provision will be critical for many business owners who currently benefit from the deduction. 

4. SALT deduction cap and Alternative Minimum Tax (AMT): The state and local tax (SALT) deduction cap limits the amount of state and local taxes that taxpayers can deduct from their U.S. taxable income. Through the end of 2025, the deduction is capped at $10,000 for single filers and married couples filing jointly.

In response, many states have enacted SALT cap “workarounds” for pass-through entity owners, enabling them to indirectly deduct state and local taxes beyond the $10,000 cap.⁴ Almost all of the 41 states with a state income tax have enacted laws allowing pass-through entities to pay these taxes at the entity level. If the SALT cap sunsets, taxpayers could once again deduct state and local taxes above $10,000, subject to other potential limitations on deductibility.

It is worth noting the interaction between the SALT deduction cap and the Alternative Minimum Tax (AMT). The AMT is a parallel tax system designed to ensure high-income individuals pay a minimum level of tax. The TCJA significantly reduced the number of taxpayers affected by the AMT, but if the AMT system returns in full in 2026, as scheduled, many taxpayers monitoring the possibilities around the potential full restoration of the SALT deduction should be mindful that the SALT deduction is fully disallowed under the AMT system. 

President-elect Trump and members of Congress from high-tax states on both sides of the aisle have expressed support for raising the SALT deduction cap, if not eliminating it entirely. If the TCJA were extended, some limitation might still be required to offset the cost of other tax cuts. Given the uncertain resolution of this issue, if you are affected by the SALT deduction cap or your state’s pass-through entity tax, you should consider the impact of any potential changes to U.S. or state legislation beyond 2025. 

Additional items we’re watching

It’s possible that some expiring provisions of the TCJA will be modified instead of extended as-is. The Congressional Budget Office estimates that a full extension of the TCJA would cost approximately $4.6 trillion over 10 years. This substantial cost may necessitate a balanced approach to tax policy, potentially requiring trade-offs in other areas to manage the fiscal and economic impact.

Potential tax legislation affecting business owners could extend beyond the TCJA provisions. For instance, President-elect Trump has mentioned eliminating taxes on overtime pay and Social Security benefits, as well as taxes on tips for restaurant and hospitality workers. He has also proposed reducing the corporate tax rate for domestic manufacturers, which is currently 21%, to as low as 15%.

If these provisions were enacted and many of the expiring TCJA provisions were extended, U.S. government revenues would drop—perhaps precipitously. To replace the lost revenue, the President-elect has proposed imposing blanket tariffs on all imported goods. Whether tariffs would be done unilaterally or in conjunction with Congress remains to be seen.

In addition to the TCJA provisions, any meaningful tax legislation is likely to bring existing provisions into the conversation. Business owners should stay informed about discussions surrounding immediate expensing of research and development expenditures, Qualified Opportunity Zones and more generous limitations on business interest deductibility. These potential changes could have far-reaching implications for strategic planning and financial management within their organizations. As the legislative landscape evolves, staying vigilant and adaptable will be key for business owners navigating these potential shifts in tax policy.

We can help

The specifics of future tax legislation remain uncertain, and it is unlikely we will see any legislation enacted during the first half of 2025. In the meantime, business owners should stay informed about potential changes and consult with their tax advisors to assess the impact on their businesses. From a personal perspective, those with a taxable estate and the capacity to gift to beneficiaries are encouraged to start this process soon.

Your J.P. Morgan team, along with your tax and legal advisors, can help you explore your options and keep you updated on any legislative changes. By staying proactive and informed, business owners can navigate the evolving tax landscape and make strategic decisions for their businesses.

¹ Certain jet aircraft may qualify for 80% bonus depreciation through the end of 2024. Bonus depreciation is scheduled to decrease 20% annually until it phases out by 2028. 

² “Specified service” trades or businesses include health, law, accounting, actuarial service, performing arts, consulting, athletics, financial and brokerage services (including investing and investment management, trading, or dealing in securities, partnership interests or commodities). They also include any trade or business in which the principal asset is the reputation or skill of one or more of its employees. 

³ In 2024, the threshold amount is $192,000 for single filers and $383,900 for joint filers. In 2025, those amounts increase to $197,360 for single filers and $394,600 for joint filers. 

⁴ For more information, please refer to our article: Can you benefit from the SALT cap workaround?