Contractors, Individual Taxpayers Must Plan for Expiring TCJA Provisions

The Tax Cuts and Jobs Act of 2017 (TCJA), signed into law by then President Trump, resulted in the biggest changes to the Internal Revenue Code since the Reagan administration’s Tax Reform Act of 1986. Over the last four years, American businesses and individuals have enjoyed many of the tax benefits TCJA provided and have become accustomed to that new normal in their business and personal finances. Yet, while most American business owners are preoccupied with running their businesses amidst supply chain interruptions and runaway inflation, not to mention taking care of their families, they might not notice that the sun is beginning to set on many of the most impactful provisions of TCJA.

Each year since TCJA went into effect in 2018, a handful of narrowly applied provisions have expired including a tax credit for advanced nuclear power facilities at the end of 2020. Meanwhile, residential and business solar energy credits that were originally set to expire in 2021 have been extended and are now scheduled to expire starting in 2024. And while many benefitted from these credits, even more contractors and other businesses utilizing heavy equipment have benefited from 100 percent bonus depreciation. Since 2018, businesses have been able to fully expense their equipment and vehicle purchases in the year those assets were placed in service. At the end of 2022, that provision will begin to sunset, 20 percent annually until it reverts to pre-TCJA rules for depreciation after 2026.

Several excise taxes will also expire at the end of this year, including taxes on sales of heavy highway vehicles and heavy truck tires, and fuel taxes that were designated for the Highway Trust Fund. The annual use tax on heavy highway vehicles is then set to expire in 2023. And while the Infrastructure Investment and Jobs Act, passed in February 2022, includes funding to keep the Highway Trust Fund from insolvency, or at least delay insolvency until 2027, through general revenue transfers to make up the shortfall in permanent revenue sources, the Fund will require a more permanent fix to remain solvent beyond 2027.

No significant TCJA provisions are set to expire in 2024, but 23 provisions are scheduled for expiration in 2025, most notably, the reduction in individual income tax rates and the 20 percent deduction on qualified business income for pass-throughs. Increases in the child tax credit, the standard deduction, and the Alternative Minimum Tax (AMT) exemption included in the TCJA are also set to expire in 2025. Taxpayers have benefited immensely from these provisions and will certainly feel the impact if they are allowed to expire as currently scheduled.

Without action by Congress and the President, most American taxpayers will see a significant tax hike after the expiration of these and other provisions of TCJA. While the Biden Administration has been largely unsuccessful in advancing any of its tax initiatives to date, history reminds us that Washington often waits until the eleventh hour to address expiring tax provisions. That makes it difficult for business owners and individual taxpayers to plan in the interim—and even more important to consider the potential impact of these expiring provisions on cash flow when budgeting for the next few years.

For more information or to talk with an advisor about the potential impact of expiring provisions on your firm’s bottom line, contact an HBK Construction Solutions advisor at 239-263-2111; or email me at bdougherty@hbkcpa.com.