TCJA Sunset 2025: How Business Owners Can Prepare Now

As the Tax Cuts and Jobs Act (TCJA) sunsets in 2025, business owners face higher tax rates, reduced deductions, and estate tax changes. Learn how to prepare.

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.

FAQs

• How will the TCJA sunset impact my taxes? Expect higher tax rates, reduced deductions, and lower estate tax exemptions.
• Can I avoid estate tax increases? Yes, by utilizing trusts, gifting strategies, and tax-efficient estate planning.
• Should I convert my pass-through entity to a C-Corp? It depends on your income level, tax brackets, and future growth plans.
• Where can I get personalized tax advice?Contact Guardian Tax Consultants.