Future of tax law raises concerns in business community
Listen to this articleBRIDGEWATER, N.J. — Business owners celebrated when the Tax Cuts and Jobs Act of 2017 was introduced during President Donald Trump’s first term in the White House. The TCJA offered some juicy incentives that put more money in business owners’ pockets, sparking investments in job creation, equipment and other assets.
But the party could be over soon, with many TCJA provisions scheduled to expire at the end of this year. A 100% “bonus depreciation” write-off, for example — which generally allows a business to immediately deduct a large percentage of the purchase price of eligible assets — has been steadily eroding, and is slated to evaporate at the end of 2027. And with political and financial pressures rising, other TCJA goodies could get trimmed or even eliminated at the end of 2025, unless a divided Congress comes together to extend them.
When it comes to tax provisions, “the only certainty is that nothing is ever permanent,” cautioned Nicole DeRosa, director of tax at SKC CPAs in Boonton Township, New Jersey. “But that may change with regards to the TCJA, since it is anticipated and expected that many of the TCJA provisions will be made ‘permanent’ by year-end, thanks to Republican control of the House and Senate. So, we will likely see swift action on some of the provisions.”
Business owners need that, since they “are already worried about some issues like the way Trump’s tariffs will impact the cost of supplies and goods that are sold in their businesses, and how cuts to IRS staff clients could impact their ability to resolve tax issues in a timely manner,” DeRosa added. “But they are looking forward to a tax-favorable resolution, specifically with regard to capital spending provisions, like the ability to immediately expense big-ticket items.”
The glory days of capital asset write-offs may be receding — so-called “bonus depreciation” is down to 40% for 2025 — but she thinks some sort of accelerated depreciation is likely to be retained. “Some of my real estate clients have requested cost segregation studies on new real estate rental properties and investments to take advantage of accelerated depreciation,” DeRosa said, referring to a kind of autopsy that dissects the construction cost or purchase price of real property. That asset would typically be depreciated over 27-and-a-half or 39 years, but a cost segregation study examines specific property-related costs — like electrical outlets that are dedicated to equipment such as appliances or computers — which may be eligible to be depreciated over a shorter period, like five years.
“This is standard practice that I don’t see changing much, no matter what the tax landscape ends up being,” she added. “Though not as favorable as in years past, cost segregation studies still yield tax-favorable treatment for the real estate investor.”
And depending on specific circumstances, some of her New Jersey-based clients “take advantage of IRC 179D, the Energy Efficient Commercial Buildings deduction that was expanded under the Inflation Reduction Act.”
DeRosa noted, though, that residents of New Jersey and other high local-tax states are hoping that one provision of the TCJA does fade away as scheduled: the state and local tax (SALT) cap, which generally limits the ability to deduct property tax and certain other taxes to $10,000 a year.
“Some state workarounds allow certain pass-through entities in New Jersey to elect to pay state income taxes at the entity level, where deductions for such taxes are not limited, instead of at the personal income tax level, but it still hurts many taxpayers. There have been rumblings that the cap may be lifted or raised, but I won’t believe anything until I see it.”
Other CPAs are also skeptical. “Federal government trends have been less-than-predictable these days,” noted Ren Cicalese III, associate partner at Alloy Silverstein Accountants and Advisors in Cherry Hill, New Jersey. “I believe there will be some kind of extension of the tax cuts at some point this year but getting there will involve solving many technical hurdles. Tax legislation typically comes from the House, and with a very slim Republican majority, Trump tax cut extension supporters must be unified to advance any legislation.”
That could be a challenge for Republicans in states like New Jersey, which have relatively high property and other taxes, added Cicalese. “Some House Republicans are saying they may not sign off on an extension of the TCJA provisions unless the SALT cap is substantially raised or even eliminated. So, Congress will have a tightrope walk to please everyone. I think we’ll end up with some kind of TCJA extension, but some specific provisions may be watered down.”
The uncertainty is spurring some of his clients to hit “pause” on their machinery and equipment purchasing, he said. “The prospect of losing out on bonus depreciation is definitely a pain point. Some of our manufacturing clients who invested in capital improvements during the first year of the TCJA got a nice break. Consider that a business organized as a ‘C’ Corporation in the flat 21% federal tax bracket, which invested $100,000 in M&E. They saved $21,000 of federal tax liability in the year of acquisition. If they had to wait, say, five years to recapture that, they may do a stutter step — thinking twice about the purchase. Right now, we’re advising many clients to wait a few months before making any significant capital improvements to see how this all shakes out in Congress, if they’re able to do so.”
But some businesses can’t wait that long. “One of our New Jersey-based clients is a small-tools manufacturer,” Cicalese detailed. “The assets that create their tools wear down fairly quickly, so there’s a constant cycle of replacement — they cannot defer their purchases while Congress wrangles over tax bills.”
Gains and pains
There will be winners and losers in the tax cut debate, said Phil Craft, a partner in Citrin Cooperman’s automotive dealership industry practice in Florham Park, New Jersey.
“I do believe that some major TCJA provisions will be extended but not all,” he noted. “The budget reconciliation process is a process which always has winners and losers. Many of the original TCJA provisions were great for businesses, as they effectively reduced income tax rates on qualified businesses and left much-needed cash for those looking to expand, grow and retain employees.”
He said the “most popular and effective” TCJA provision was the Qualified Business Income deduction, which effectively reduced the marginal top rate from 37% to 29.6%. “It was popular and encouraged business growth, as it was intended, by putting cash back in the pockets of owners of pass-through entities,” outlined Craft. “Many are pushing to make this a permanent provision as it is expected to expire on Dec. 31, 2025, effectively resetting rates back to the original 37% top bracket. There is a big push for this provision to be extended in order to avoid the consequences that a tax rate increase will have on many businesses, including small- and middle-market ones.”
Many of his clients are also concerned about the cost of capital. “Tax rates often play into the decision to either go out and raise capital by means of financing or equity,” Craft detailed. “If tax rates increase, the after-tax profits or ROI are less, making investments less desirable for outside investors. In addition, with current interest rates remaining high, it will be expensive to go out and raise capital by means of financing.”
Some tax provisions that are not set to expire could create a double whammy. “Like Section 163J, which make deductions on interest expense problematic because it limits interest expense deductions, and in many cases causes ‘phantom income,’” warned Craft. “Taxpayers will have to pay for that with profits.”
He’s concerned that TCJA provisions could disappear, while 163J stays in place. In that case, “For those looking to make significant capital investments in infrastructure, or purchases, both of the above become problematic,” said Craft, potentially discouraging investment and hiring.
Craft pointed out that many of his large New Jersey-based auto dealership clients — ones with over $100 million in revenue and more than 500 employees — “have made significant investments in the last several years with low tax rates and increased profits coming out of COVID. The lower rates have allowed them to invest heavily in infrastructure, including facilities, and maintain upgrades required by manufacturers without having to take out high-interest loans or over leverage their balance sheets.”
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