DYSPEPSIA GENERATION

Forbes.

S Corporation shareholders and partners in a partnership could see their effective federal income tax rate increase by 30% by the end of December 31, 2025, due to the expiration of certain tax laws. With the sunsetting of the 199A deduction and an increase in individual federal income tax rates scheduled to occur as of December 31, 2025, the effective tax rate for pass-through entity owners will jump from 30% to 39.6%. Taxable income could also increase due to the sunsetting Tax Cuts and Jobs Act provisions, including the capitalization of research and experimental expenditures, bonus depreciation dropping to 60% in 2024 and to 40% in 2025, and the application of a more restrictive interest expense limitation calculation.

A dramatic increase to the effective tax rate may catch many pass-through entity businesses by surprise. Doesn’t Congress have to pass a bill to change federal income tax law? Unfortunately, not in this situation. For tax law to be passed, the Senate normally needs a 60-vote majority to overcome a filibuster. However, provided the political party controls the Presidency, House and Senate, laws can be passed under the budget reconciliation process where only a simple majority in the Senate is needed. The budget reconciliation process was utilized to pass the Tax Cut and Jobs Act (“TCJA”) in December of 2017, which bypassed the need for bipartisan support. Under the reconciliation process, the bill cannot increase the deficit beyond a 10-year budget window. Under the Tax Cuts and Jobs Act, taxes were reduced substantially between 2018 through 2025, resulting in an anticipated $1-$2 trillion increase to the national deficit. Both parties have used the budget reconciliation process when controlling the Presidency and Congress. In 2010, the budget reconciliation process was utilized to amend the Affordable Care Act and modify the federal student loan program. This process was utilized most recently in 2021 to enact additional COVID-19 relief via the American Rescue Plan.

Thank you, Joe Biden.

This entry was posted on Monday, June 10th, 2024 at 06:31 and is filed under Your tax dollars at work - and play.. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.