3 Tax Strategies Businesses Used in 2024 — and How They Might Change
Proposed Legislation Could Reshape Business Tax Planning
With the past year’s most effective business tax strategies in mind, all eyes are on Congress as a sweeping new tax bill could dramatically alter how businesses approach deductions, credits, and entity structuring.
Below are three tactics many businesses relied on in 2024 and how pending legislation could reshape them.
1. Accelerated Depreciation & Bonus Expensing
2024 Strategy
In 2024, many businesses utilized 60% bonus depreciation and Section 179 expensing, particularly for Qualified Improvement Property (QIP). This allowed them to deduct costs for interior upgrades, such as HVAC, fire protection, roofs, and security systems, up to the $1.2 million Section 179 limit, significantly offsetting facility improvements for expanding groups.
Proposed Change
The new tax bill would reinstate 100% bonus depreciation from January 2025 through 2029, including some manufacturing and production buildings. Additionally, Section 163(j) would be amended to allow depreciation and amortization to be added back when calculating the limit on business interest deductions—potentially unlocking larger interest deductions (excluding floor plan financing, which remains deductible).
2. Pass-Through Entity (PTE) Tax Election
2024 Strategy
To bypass the personal SALT deduction cap and maximize deductibility, pass-through businesses (such as S corporations and partnerships) have increasingly opted for the PTE tax workaround, deducting state taxes at the entity level.
Proposed Change
The bill proposes raising the SALT cap to $40,000 for individual taxpayers earning under $500,000, with a phased reduction for higher incomes. Simultaneously, the legislation aims to restrict or eliminate PTE workarounds, significantly impacting this popular tax planning strategy for many auto owners.
3. Section 199A Pass-Through Deduction
2024 Strategy
Businesses strategically structured pass-through income to claim the 20% deduction under Section 199A, thereby lowering their effective tax rate on qualified business income.
Proposed Change
This deduction is set to become permanent and increase to 23% for tax years beginning after 2025. Additionally, its phaseout thresholds will be adjusted using wage and asset tests, and dividends from Business Development Companies (BDCs) will become eligible.
Additional Tax Changes That May Impact Businesses
Domestic R&D Deduction Restored
The bill would restore immediate expensing for domestic research and development (R&D) costs under Section 174 from 2025 to 2029. This is crucial for businesses investing in systems, software, or data infrastructure.
Auto Loan Interest Deduction
A new above-the-line deduction for up to $10,000 in interest on loans for U.S.-assembled passenger vehicles will be available from 2025 through 2028. This deduction begins to phase out at $100,000 for individuals and $200,000 for joint filers, and excludes fleet, commercial, and lease vehicles.
What Businesses Should Do Now
With significant tax changes on the horizon for 2025, businesses should promptly reassess their tax strategies and entity structures. Proactive guidance on areas like depreciation, entity elections, and inventory is crucial.
Prepare for What’s Next
Engage a tax advisor knowledgeable in both the operational and compliance aspects of your business. With strategic planning, you can effectively steer through any tax shifts.
Disclaimer: This article provides general information and should not be considered professional financial or tax advice. Please consult with a qualified CPA or financial advisor for guidance specific to your individual business needs.
Questions?
Kristin is a Brady Ware Shareholder with over a decade of experience, specializing in tax services for pass-through entities and complex individual tax situations. She serves clients across various industries, including real estate, wholesaling, and professional services. Kristin provides strategic guidance to help clients navigate their financial landscape confidently.