Timothy Laffey , head of tax policy and research advisory at Rockefeller Global Family Office in Philadelphia , says some things about the change will require more immediate attention than others .

The changes after 2025 will affect qualified business income , bonus depreciation and the limitation on state and local tax deductions . Also set to change are individual income tax rates and brackets , the standard deduction , personal exemptions and miscellaneous itemized deductions .

The accelerated business tax deduction allows businesses to immediately deduct a large percentage of the purchase price of eligible assets . Businesses were allowed to deduct 100 % immediately in 2022 , and only 80 % immediately in 2023 ( after that it steps down to 60 % in 2024 , 40 % in 2025 … until it goes to 20 % in 2026 and then to zero ).

This means now might be the moment to buy certain business assets . “ Currently , businesses can write off up to 80 % of the purchase price of an asset placed into service within the calendar year and depreciate the remaining 20 % over the next several years ,” says Brett Walters , financial planner at TBH Advisors in Brentwood , Tenn .

“ For example , if the business purchases a vehicle with a [ gross weight ] of 6,000 pounds or more , the business can deduct 80 % of the purchase price within the year the vehicle was placed into service , as long as the vehicle is used solely for the business ,” Walters says .

The end of the qualified business income deduction , which allows business owners to deduct up to 20 % of their income from pass-through businesses , also means owners might need to rethink their corporate structures when the law expires , Laffey says , since the end of that deduction will make pass-through entities less attractive .

“ With the qualified business income deduction set to expire at the end of 2025 and the 21 % corporate tax rate remaining in place indefinitely , pass-through entities may want to begin discussing whether a conversion to a C corp at the end of 2025 would make financial sense ,” he says .

Richard Pianoforte , managing director at Fiduciary Trust International in New York , says that business owners meanwhile need to remember to take care of their personal future finances , too , and “ make the maximum deductible contributions to retirement accounts .”

“ Business owners can take advantage of SEP [ Simplified Employee Pension ] IRAs to reduce their overall income and at the same time set aside some money for retirement ,” he says .

“ You can also try to postpone income into the next year such as holding off on taking capital gains on appreciated stock , deferred stock options or deferring bonus income if possible ,” Pianoforte adds . “ If you ’ re currently in required minimum distribution status with your IRA and at least 70½ years old , [ you can ] use a qualified charitable distribution to give up to $ 100,000 directly from your IRA to an eligible charity without paying tax on it .”

Business owners with a traditional IRA , like other holders of such accounts , should look into Roth conversions , particularly if they are young owners facing the likelihood of higher tax rates in the future .

Business owners with a traditional IRA should look into Roth conversions , particularly if they are young owners facing the likelihood of higher tax rates in the future .

But they shouldn ’ t pay so much that it tips them past the 24 % tax bracket , Walters says , “ and it ’ s best if the taxes from the conversion are paid from an outside source and not from the converted Roth IRA . The younger the taxpayer , the greater the long-term benefit from annual Roth conversions , because the investments in the converted Roth IRA will replenish the taxes paid on the conversion .”

Walters adds , “ Self-employed business owners should consider opening and funding a solo 401 ( k ) or individual 401 ( k ) by December 31 . … If they don ’ t have employees , they may be able to make a deductible contribution to the qualified plan of up to $ 66,000 for the tax year 2023 , either as employee contributions or profit sharing — but the plan must be opened before the end of the tax year .”

— Jeff Stimpson

DECEMBER 2023 | FINANCIAL ADVISOR MAGAZINE | 13