Businesses and individuals will want to watch for legislative changes in light of the new federal administration in case those taxpayers need to make adjustments to tax and estate planning strategies, recommend experts who led a Birmingham-based Kassouf & Co. Inc. tax and estate planning workshop earlier this year.
One of the biggest impacts for 2025 might be whether certain provisions of the Tax Cuts and Jobs Act of 2017 are allowed to expire at the end of this year, says Joel C. Jones, CPA, a director in Kassouf’s business services group. “Things are uncertain but manageable,” he says. “It will take legislation to change things. When it happens will depend on the urgency. We have the same president as in 2016, so it stands to reason that his priorities (to reduce taxes) will be similar to last time.”
Jones’ workshop co-leader, attorney Sarah Johnston, a shareholder in Birmingham-based Dentons Sirote’s trusts, estates and wealth preservation section, agrees but emphasizes that those without an estate or business succession plan shouldn’t wait for things to settle down on the tax front to create a plan.
“Situations are always changing, and you can make adjustments, but without a plan now you potentially could limit your future options (because of choices being made without an adviser’s input on tax-reducing strategies),” she says.
The House of Representatives passed a budget resolution addressing tax changes in February, setting up a reconciliation process with the Senate, which had previously passed a smaller, related budget bill. That process could lead to the extension of the 2017 tax cuts and making other cuts, including not taxing tips and Social Security payments. Details of a potential joint bill were in the process of being worked out at press time.
Jones says the Tax Cut and Jobs Act was “the largest tax overhaul in 30 years.” One major provision of note that isn’t expiring is the corporate income tax rate reduction from a maximum of 35% to a flat rate of 21%.
However, individual income tax rates, which the act reduced by several percent in each tax bracket, potentially could be allowed to expire. That would affect short-term capital gains and influence the timing of better income and deduction choices, he says. “With DOGE cutting spending the budget could be reduced, which would make the case for less tax,” Jones says. “Politics can be unpredictable, so we will need to continue to monitor the situation.”
Other act provisions affecting individuals subject to expiration at the end of the year include:
- The standard deduction, which could revert to much lower 2018 levels with adjustments for inflation. That change could motivate more people to itemize their deductions.
- The Alternative Minimum Tax deduction and phase-out threshold, which affects high-income earners, would revert to pre-act levels, increasing taxes for those taxpayers.
- The Child Tax Credit could revert back to $1,000, which would create more tax burden to households with children.
- Currently the maximum State and Local Tax Deduction (SALT) is limited to $10,000. If the provision expires, there will be no limit except the limit for itemized deductions in general. This provision could have greatest impact for increased deductions for those who live in states, such as California and New York, with the highest state and local taxes.
- Unless the Miscellaneous Itemized Deductions ceiling of 2% is again suspended, taxpayers will not be able to take advantage of the extra deduction they might receive. Similarly, deductions for mortgage interest and charitable contributions could be reduced.
Act provisions affecting businesses that are subject to expiration at the end of the year include:
- The qualified business income deduction of 20% for a partnership, S corporation or sole proprietorship after December 31 this year. The deduction was created to help equalize tax treatment of those entities with that of C corporations as the act’s tax reductions remain permanent for C corporations.
- Deferral of gains for Qualified Opportunity Zones, which affects investments in economically distressed communities. Because this provision is popular with both Republicans and Democrats, it will likely be extended, Jones says.
- Deduction for on-premise meals for employees.
- Bonus depreciation for assets put in service after Dec. 31, 2026, with few exceptions.
For those considering the purchase of an electronic vehicle, time might be of the essence in getting a tax break, Jones says. President Donald Trump has come out publicly many times against the $7,500 electric vehicle tax credit, and bills addressing it already have been introduced. Those interested in purchasing one might want to monitor the status of the current tax credit, he suggests. “It will require legislative action to end the credit rather than an executive order,” Jones says.
When it comes to estate planning and the Tax and Job Acts expirations, the biggest impacts might be on the estate tax/lifetime gift exemption and transfers to non-spouses, anyone to whom an individual is not married, says Johnston, who focuses on estate planning and helping clients reduce the impact of transfer taxes assessed when assets are moved from one owner to another. “I’m looking at things from the perspective of the wealthy client planning for estate and business succession, transferring to trusts, and addressing appreciation of illiquid assets,” Johnston says.
The 2017 act’s $10 million gift exemption might be extended through a budget reconciliation bill, or if the provision’s expiration is unaddressed by the end of the year, reduced to $5 million. The level of transfers not taxed could drop from $13.99 million this year to $5 to $7 million in 2026. “A surviving spouse may elect to use a deceased spouse’s unused exemption amount, but that has to be set up right after the spouse dies,” Johnston notes.
Business owners and property owners especially are vulnerable to lost options if they wait to plan, Johnston says. They may assume they don’t have enough assets to need to plan because they are only considering the wealth of their investment accounts and other liquid assets. But their business and property values are appreciating all the time. “A good rule of thumb is that assets that grow 7% a year will double in 10 years and those that grow at only 5% will still double in 17 years,” she says.
Johnston stresses the importance of planning now to protect the future of assets regardless of how tax legislation ultimately works out. “My first question to clients is what their goals are, what do they want for their legacy, what are they comfortable with?” Johnston says. “Most want to reduce the tax burden on their legacy, but not all.”
Both Johnston and Jones say some of the biggest mistakes individuals and businesses tend to make in general when it comes to taxes, no matter what the administration, is not taking time to consult with their accountant and estate planning attorney before making major financial changes such as the sale of a property. “The way a property sale is structured up front can make a huge difference as far as the tax implications,” Jones says. “When you call after the fact, you may significantly limit your options.”
Kathy Hagood is a Homewood-based freelance contributor to Business Alabama.
This article appears in the April 2025 issue of Business Alabama.
