What Does the TCJA Sunset Mean?

Many tax provisions introduced under the **Tax Cuts and Jobs Act of 2017 (TCJA)** will expire at **midnight on January 1, 2026**, unless Congress acts to extend them.

Key Expiring Provisions:

• The **Qualified Business Income (QBI) Deduction (199A)** for pass-through entities.
• Reduction in the **federal estate and gift tax exemption**.
• Increase in the **top individual income tax rate from 37% to 39.6%**.
• Expiration of **lower individual tax brackets** introduced by TCJA.

Estate Tax Changes & Wealth Transfer Risks

The TCJA temporarily **doubled the estate and gift tax exemption**, but this provision is set to expire in **2026**, cutting the exemption in half.

Estate Tax Exemption Changes:

• **2023 Exemption:** $12.92 million per individual, $25.84 million per couple.
• **2024 Exemption:** $13.61 million per individual, $27.22 million per couple.
• **2026 Projected Exemption:** ~$6.8 million per individual, ~$14 million per couple.

Impact on Business Owners: If estate planning is not updated, **40% of taxable estate value above the exemption could be taxed**.

How to Minimize Estate Tax Exposure:

• Utilize **Irrevocable Trusts** for wealth transfers.
• Gift assets to **family members before the exemption reduction**.
• Set up **family limited partnerships (FLPs) or grantor trusts**.
• Implement **charitable giving strategies** to reduce taxable estate value.

Pass-Through Entity Taxation: The End of Section 199A?

Section **199A** of the TCJA allows **pass-through businesses** (LLCs, S-Corps, and partnerships) to deduct **20% of qualified business income (QBI)**.

Impact of Expiration: If this provision sunsets in 2026:

• Businesses structured as **S-Corps and LLCs will lose the 20% deduction**.
• Pass-through businesses could face an **effective tax increase**.
• The **corporate tax rate remains at 21%**, making C-Corp structures more attractive.

Should You Convert to a C-Corporation?

With **pass-through taxation becoming less favorable**, some businesses may consider converting to a **C-Corporation**.

Pros of C-Corporation Structure:

• Lower **corporate tax rate (21%)** remains unchanged.
• Easier access to **capital and investment opportunities**.
• Ability to **retain earnings for business growth** without excess tax.

However, **double taxation risks** on dividends still exist, making entity restructuring a complex decision.

Income Tax Rate Increases for Business Owners

With the TCJA sunset, the **top marginal tax rate** will rise from **37% to 39.6%**.

Projected Tax Bracket Changes:

How to Mitigate Tax Increases:

• Accelerate **income recognition** before 2026.
• Maximize **retirement contributions** to reduce taxable income.
• Use **tax-efficient investment strategies** (e.g., Roth conversions, municipal bonds).

Proactive Tax Strategies Before 2026

• Reassess your **business entity structure**.
• Utilize **estate planning tools** before exemption reductions.
• Optimize **retirement savings plans** for tax efficiency.
• Implement **trust-based tax planning** for wealth preservation.
• Explore **tax credits & deductions available before they expire**.

Work with Guardian Tax Consultants to Prepare

With the **TCJA sunset looming**, business owners must act now to avoid tax hikes.

We provide:

• Custom **tax mitigation strategies** for business owners.
• Estate planning services to **protect wealth**.
• Entity restructuring analysis for **optimal tax benefits**.

Take Action: Schedule a consultation today.