Page 120 - BCM June 2024

D.C. WATCH

The Disappearing Deductions

As aspects of the Trump-era TCJA are about to expire, planning is needed.

n 2017, President Trump signed the Tax Cuts and Jobs whether these e orts to address the expiring deductions
I Act (TCJA), a sweeping reform of the U.S. tax code that separately from the currently stalled tax legislation can be
signi cantly altered personal, corporate, and small business successful in this Congress.
taxation. As we near 2025, many of the TCJA’s key business As the sunset of some of the TCJA’s provisions approach-
tax deductions are set to expire, which could substantially es, crucial deductions on the chopping block include:
impact businesses of all sizes, particularly ■ Full expensing of certain business assets (Section 179
smaller enterprises like bowling centers. Expensing). is provision allows businesses to immedi-
For proprietors, the expiration of these ately deduct the cost of qualifying assets in the year they
deductions is not just a scal concern but are purchased, rather than depreciating them over several
a strategic one that could in uence every- years. For bowling centers, this could cover new lanes, scor-
thing from day-to-day operations to long- ing systems or other critical renovations.
BRANDON term nancial planning. Understanding ■ Deduction for quali ed business income (QBI).
PALUMBO the breadth of these changes and preparing Perhaps most critical for pass-through entities, this deduc-
for their impact is crucial in navigating the tion allows eligible businesses to deduct up to 20% of their
future successfully. business income, e ectively reducing their taxable income
e TCJA was projected by the Joint Committee on Taxa- and, by extension, their tax burden.
tion to reduce federal tax collections by about $1.46 trillion e loss of these deductions could lead to signi cantly
from scal year 2018 to scal year 2027. is reduction was higher tax bills for proprietors. For instance, without the
achieved through a variety of measures designed to de- QBI deduction, the e ective tax rate for many small busi-
crease the tax burden on individuals and businesses alike. nesses could increase sharply, reducing overall pro tability
Among the most praised aspects of the TCJA were the and operational exibility. Comparatively, larger corpora-
provisions that directly bene ted small businesses, includ- tions with permanent tax breaks will maintain a competi-
ing enhanced deductions for business meals, more gener- tive edge, potentially squeezing smaller operations out of
ous expensing options for new equipment and, notably, the market.
the introduction of the Quali ed Business Income (QBI) e expiration of these deductions represents more than
deduction, allowing a deduction of up to 20% of business just an increase in tax liabilities; it could fundamentally
income. alter the nancial landscape for small businesses. Reduced
ese changes have had a tangible impact on small busi- cash ow and increased tax burdens could hamstring the
nesses. Many proprietors have shared testimonials about ability of bowling centers to invest in improvements or
how these deductions have enabled them to reinvest in expand their services, ultimately sti ing growth within the
their facilities, upgrade equipment and improve customer sector.
experience — investments that are vital for staying competi- To prepare for these changes, bowling center proprietors
tive in a challenging economic landscape. should consider several strategies, including:
Unfortunately, e orts to extend these deductions have ■ Strategic nancial planning. Work with tax profes-
stalled in the Senate. Despite passing tax legislation in the sionals to reassess nancial plans and explore new saving
House of Representatives with wide bipartisan support strategies under the potentially evolving tax regime.
(357-70), disagreements among Senate Finance Committee ■ Advocacy. Engage with legislators and with BPAA,
leadership over a separate issue — the House’s inclusion of which advocates on behalf of bowling centers in Washing-
a Child Tax Credit expansion — have caused negotiations ton, D.C. Sharing real-world impacts on businesses like
to cease. yours can help shape these crucial policy decisions.
Meanwhile, House Ways and Means Committee Chair- As the future of tax policy remains uncertain and Con-
man Jason Smith (R-MO), who successfully shepherded gress debates these issues, the importance of understand-
through the House’s tax legislation, announced the creation ing, preparing for and in uencing legislative changes
of 10 Committee Tax Teams. e teams are to address the cannot be overstated. By actively assessing business strate-
TCJA tax provisions that are set to expire in 2025 and iden- gies and engaging in advocacy, proprietors can mitigate
tify legislative solutions. negative impacts and drive favorable outcomes.
However, it is important to note that there were no
Democrats assigned to these teams. Given the dynamics in Brandon Palumbo is a senior associate with Michael Best
play for the upcoming 2024 election and the di ering priori- Strategies. BPAA works with Michael Best Strategies on fed-
ties of Democrats and Republican, it remains to be seen eral and state advocacy.

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