In 2017, the Tax Cuts and Jobs Act (TCJA) brought sweeping changes to U.S. tax law — but not all of them were permanent.
Some of the provisions from the TCJA are set to expire at the end of 2025. While these expirations primarily affect individual taxpayers, there are still some things that startup founders should know.
What’s changing
If nothing changes and the TCJA expires on January 1, 2026, taxation across the country will change in a number of ways. Here are just a few startup founders need to know about:
Qualified business income deduction
This change pertains to your individual taxes, but because your company’s income has a direct impact here, it’s worth mentioning.
If you’re in your pre-seed stage and still operating as a sole proprietorship or a partnership — or you’ve founded an S-corp — the TCJA offered a qualified business income deduction. Through Section 199A of the Act, non-corporate taxpayers could deduct up to 20% of their qualified business income. That income deduction will go away if the TCJA expires.
This provision’s sunsetting could also impact your investors. Section 199A allows non-corporate taxpayers — like angel investors — to deduct 20% of their income from qualified publicly traded partnerships.
International taxation
Under the TCJA, businesses who operate internationally could take a deduction based on the amount of tax they pay on foreign-derived intangible income (FDII) and global intangible low-taxed income (GILTI). Specifically, the TCJA allowed for a deduction of 37.5% of the company’s FDII plus 50% of its GILTI.
After December 31, 2025, those deduction amounts adjust to 21.875% of FDII and 37.5% of GILTI.
Note that unlike other changes, the expiration of the TCJA isn’t what drives this adjustment. Instead, the downward movement of those deduction rates is written into Section 250 of the Internal Revenue Code.
Changes that impact your personal taxes
The bulk of TCJA corporate tax provisions aren’t set to expire with the Act at the end of next year. That said, because a founder’s personal finances are often so intertwined with their startup’s, it’s helpful to know how the upcoming adjustments might affect your personal taxes.
If the TCJA expires, the following changes will be coming your way:
- Standard deduction decrease. The TCJA fairly significantly increased the standard deduction that taxpayers could take. With its enactment, that deduction jumped from $6,500 to $12,000 for single filers and $13,000 to $24,000 for joint filers. In 2024, the deduction is $14,600 for single filers and $29,200 for joint filers. If the TCJA expires, experts estimate that the single filer deduction will be $8,300 and the joint filer deduction will be $16,600 in 2026. That means that unless you itemize your deductions, you’ll likely have a higher personal tax bill when the TCJA expires.
- SALT deduction cap expiration. If you live in a high-tax state, you might benefit from one change coming with the TCJA’s expiration. That Act capped the deduction of state and local taxes (SALT) at $10,000. With its expiration, that cap goes away, meaning you can take an unlimited deduction on property taxes and income taxes (or sales taxes, if you live in a state that doesn’t have income tax).
- Income tax rate changes. The TCJA lowered tax rates for some individuals, particularly those in higher tax brackets. If it expires, we’ll adjust from seven tax brackets at 10%, 12%, 22%, 24%, 32%, 35%, and 37% to seven brackets at 10%, 15%, 25%, 28%, 33%, 35%, and 39.6%.
What’s staying
While January 1, 2026, will ring in the end of some TCJA provisions, other parts of the Act don’t come with sunset dates. That includes the changes it enacted to:
Corporate tax rates
The majority of TCJA provisions that pertain to corporations won’t expire. That includes the way the Act reduced the corporate tax rate to 21%.
The amortization of R&D expense deductions
If the TCJA expiring sounds like good news to you, you were probably one of the startups heavily impacted by the way it changed the tax deductions you can take for R&D (or what the IRS calls research and experimentation). Under the TCJA, businesses need to amortize domestic research and experimentation deductions over five years.
This change took effect at the end of 2021 and, unfortunately, it’s not one of the TCJA provisions set to sunset.
If you aren’t already familiar with this relatively new R&D tax structure, we have a guide to catch you up to speed.
A note on Section 179 deductions
While this doesn’t fall in with the grouping of TCJA provisions expiring at the end of next year, it’s worth noting because it’s a changing tax benefit that impacts many startups.
The TCJA added a provision allowing businesses to take an immediate 100% deduction for the purchase of Section 179 property, i.e., depreciable assets like equipment, vehicles, furniture, and software. To qualify, the property needs to have a useful life of 20 years or less.
That 100% deduction has already started to gradually sunset. It has decreased by 20% in every taxable year from 2023 on, and will fully expire on January 1, 2027.
One last caveat
All of the above assumes that no legislative action is taken to preserve some or all of these TCJA provisions. The results of the upcoming election season and the resulting structure in Congress will determine what, if anything, gets saved before expiration. It’s already a hotly debated topic, so startup founders should stay tuned.
Even if we knew for a fact that all of the tax provisions laid out in the Tax Cuts and Jobs Act would expire, navigating the waters ahead wouldn’t be easy. But because some will expire, others will stay in place, and still others sunset at later dates, there’s a lot of murkiness. Add in the fact that there’s a chance Congress will act to preserve some or all of the Act, and the waters get even muddier.
All told, there’s not a lot to do for the moment except sit tight and stay in the know. If Congress acts at the last minute, founders need to be poised to protect themselves and their companies. That means complying with whatever tax provisions are in place at that time while taking steps to minimize both your personal and corporate tax liabilities.
We can help. To learn more about how the TCJA and its potential upcoming expirations could affect your startup, contact us. We can come alongside you to help you figure out what’s required of you and your startup as these provisions shift.