Advising clients amid elections and TCJA sunset

Editor: Brandon Lagarde, CPA, J.D., LL.M.

Advising clients in times of political and economic uncertainty requires agility, foresight, and clear communication. With elections this year and the impending sunset of certain provisions of the Tax Cuts and Jobs Act (TCJA), P. L. 115-97, at the end of 2025, there is now a great need for proactive and well-informed guidance. It is vital for tax advisers to consider the nuances of tax planning and compliance that directly affect their clients. This column explores strategies that tax advisers can use to guide their clients through this uncertain period, ensuring they are prepared for potential changes in tax policies and can make informed tax decisions.

TCJA sunset

The TCJA, signed into law in late 2017, introduced significant changes to the Internal Revenue Code. Key features included a significant reduction in the top corporate tax rate, the 20% qualified business income (QBI) deduction under Sec. 199A for certain passthrough entities, changes to various business deductions, a reduction in individual tax rates, changes to individual itemized and standard deductions, and a doubling of the estate and gift tax basic exclusion amount.

The TCJA was passed using a process called budget reconciliation, which limited the revenue losses the legislation could generate. To limit the revenue losses, some of the TCJA provisions reducing revenue — mainly those affecting individuals, estates, and passthrough entities — were enacted with a Dec. 31, 2025, sunset date. Some of these provisions have now expired or begun phasing out, but the majority will expire on that date.

Without additional tax reform, the following are some of the noteworthy provisions that will revert to pre-TCJA tax law after 2025:

• Individual tax rates will increase;
• The estate and gift tax basic exclusion amount will be reduced by 50%;
• The QBI deduction will expire;
• The maximum child tax credit per child will be reduced by 50% (and the additional child tax credit reduced and income phaseout range lowered);
• The individual alternative minimum tax will revert to its previous regime;
• The standard deduction will decrease and personal exemptions will return; and
• Itemized deductions will change . No longer limiting state and local tax deductions, increasing the mortgage interest limit, and allowing miscellaneous itemized deductions.

In a recent report, the Congressional Budget Office (CBO) estimated that extending all expiring TCJA provisions would cost an additional $4.6 trillion from 2025 through 2034 (Budgetary Outcomes Under Alternative Assumptions About Spending and Revenues (Congressional Budget Office (May 2024)). This $1.1 trillion increase over the CBO’s estimate last year (from 2024 through 2033) would increase the current national debt of almost $35 trillion by 13%.

The 2024 bipartisan tax bill

In January 2024, after months of negotiation, the Senate Finance Committee and House Ways and Means Committee chairs released a bipartisan, bicameral tax bill (H.R. 7024, the Tax Relief for American Families and Workers Act of 2024) that provided low-income families with additional access to the child tax credit and addressed three business tax provisions recently curtailed by the TCJA:

• Allowing for expensing of domestic research and experimental expenditures (Sec. 174);
• Changing the business interest expense limitation calculation to be more taxpayer-favorable (Sec. 163(j)); and
• Providing for the immediate expensing of qualified property (100% bonus depreciation under Sec. 168(k)).

The potential legislation also included several other bipartisan priorities. Many of the provisions were drafted to be retroactive to 2022 and/or 2023. The bill was almost entirely paid for by the early termination of and other changes to the beleaguered employee retention credit.

The bill, which sailed through the House with a vote of 357-70, has been held up for months in the Senate amid opposition from most Senate Republicans. Despite widespread support for most provisions contained within the legislation, the prospects for passage remain dim, and lawmakers began to shift discussion away from the bill and toward broader 2025 tax reform efforts.

TCJA expiring provisions and the 2024 election

Elections often feature calls for changes in tax policy. This year, as the United States faces a looming tax cliff at the end of 2025, presidential and congressional campaigns will likely prominently feature each candidate’s tax platform.

A common criticism of the TCJA is that it is inherently impermanent, as it was passed by a single party. The temporary timeline for some TCJA provisions has exacerbated this concern and has created an urgent need for tax reform. This tax policy environment creates uncertainty, as tax regimes can change quickly when power shifts from one party to another. Business owners and individual taxpayers are justifiably concerned about the impact of future tax policy on their finances.

Generally speaking, Republicans have expressed a desire to extend the temporary TCJA provisions and leave the permanent 21% corporate tax rate in place, while Democrats are hoping to let some provisions expire, particularly those that benefit individual taxpayers earning over $400,000 per year, and to increase corporate tax rates. However, not all lawmakers within the same party coalesce around a single tax platform, and both parties have expressed concern over tax policy’s impact on the ballooning national debt.

The fate of expiring TCJA provisions and the direction of future tax policy ultimately rest on the outcome of the 2024 election. If the election results in a unified government (single-party control of the House, Senate, and presidency), the controlling party can be expected to focus on its tax policy priorities, and the budget reconciliation process could be a viable mechanism for achieving the party’s aims. If the election results in a divided government, any tax reform will need to be a bipartisan effort.

Regardless of the election outcome, all tax policy, even permanent provisions, will likely be open for possible revisions. Tax advisers can play a critical role in educating their clients on the possible outcomes and helping them navigate the uncertainty and complexity.

Strategies for advising clients in uncertain times

Current tax policy developments

Staying informed about tax policy developments is crucial to providing effective advice. CPAs and tax advisers should continuously monitor news and analyses from trusted sources, understanding the positions and policy proposals of both parties. Regularly updating clients about potential changes and their implications fosters trust and provides them with the information they need to make decisions (see “Communication and Trust Building” below).

From a tax adviser’s perspective, maintaining a general awareness of current and proposed policy and historical trends in tax law can help provide valuable insights. By leveraging expertise in tax policy, tax advisers can explain the practical implications of these changes in a way that clients understand.

Example 1: A tax adviser might regularly publish newsletters detailing proposed tax changes and their potential effects on different types of clients. If a party or candidate proposes lowering the capital gains tax, the adviser can provide a detailed analysis of how this change might affect investment decisions.

Scenario planning and stress testing

Scenario planning involves creating multiple potential futures based on different policy outcomes. Tax advisers can help clients understand the implications of potential changes by simulating various scenarios, such as:

• Changes in individual income tax rates;
• Changes in capital gains taxation;
• Adjustments to estate and gift taxes; and
• Changes to corporate tax rates and business deductions.

By stress testing their clients’ financial plans against these scenarios, tax advisers can identify vulnerabilities and recommend adjustments to strengthen their plans.

Example 2: A tax adviser working with a client considering selling their business might create multiple scenarios based on different capital gains tax rates. If there will likely be an unfavorable change in tax policy, such as a rise in tax rates or changes to the application of an additional tax such as the net investment income tax, the adviser could recommend accelerating the sale to avoid higher taxes.

Diversification of income sources

A diversified portfolio can help mitigate the risks associated with tax policy changes. Encourage clients to diversify their income streams, including investments, retirement accounts, and other sources, to reduce the effect of tax increases on a single type of income. From a tax adviser’s perspective, it is essential to consider the tax implications of each income source and help clients plan tax-efficient strategies. Diversification also has the benefit of reducing overall investor risk.

Example 3: A client who owns multiple rental properties is exposed to changes in property tax law. A tax adviser might advise the client to consider diversifying their investments into other asset classes, reducing that exposure. Asset classes could include investment in stocks or bonds, which are taxed differently.

Flexible financial planning

Flexibility is essential in uncertain times. Financial plans should be adaptable to changing circumstances, allowing clients to adjust their strategies as needed. Tax advisers can help clients build flexibility into their plans by:

• Maintaining liquidity for short-term needs;
• Diversifying investments across asset classes and geographic regions; and
• Ensuring they have access to lines of credit or other financial resources for unexpected expenses.

Example 4: For clients with significant wealth tied up in illiquid assets such as real property, a tax adviser could recommend maintaining a portion of their portfolio in investments that are more easily converted, such as money market funds, to ensure they can meet unexpected cash flow needs. A tax adviser also could recommend that businesses include the effect of potential future tax policy changes in their cash-needs analysis.

Tax-efficient investment strategies

Tax advisers should help clients maximize tax efficiency, regardless of potential policy changes. This can include:

• Maximizing contributions to tax-advantaged accounts such as 401(k)s and individual retirement accounts;
• Leveraging Roth conversions to lock in current tax rates;
• Using tax-loss harvesting to offset gains;
• Investing in tax-efficient funds and structures;
• Taking advantage of current tax policy, particularly provisions that may be subject to change with tax reform, such as the issuance of partnership profits interests;
• Accelerating income to take advantage of an expiring taxpayer-favorable deduction; and
• Making clients aware of opportunities to reduce current tax burdens, such as through cost segregation studies, research and development credits, etc.

Example 5: Under the TCJA, the ability to immediately expense qualified property is decreasing by 20 percentage points per year. Taxpayers were able to take “bonus” depreciation of 100% of qualifying assets in 2022 and 80% in 2023 and will be able to take bonus depreciation of 60% in 2024, 40% in 2025, and 20% in 2026 before the bonus fully phases out in 2027. As the impact of bonus depreciation diminishes, strategies such as repairs and maintenance analysis, utilization of the de minimis safe harbor, and other depreciation planning could have a significant effect on a business’s taxable income (see Galletta and Lau, “and Routine Maintenance Safe Harbors,” 55-5 The Tax Adviser 46 (May 2024)).

Proactive tax planning and timing

Timing plays a crucial role in tax planning. If tax advisers anticipate changes to tax policy that will increase tax liabilities, clients might benefit from accelerating income or deferring deductions. Conversely, if tax advisers expect the introduction of new tax benefits, deferring income might be advantageous. Understanding the timing of potential tax changes helps tax advisers guide their clients effectively.

Example 6: If there does not seem to be an appetite on Capitol Hill for renewing the QBI deduction, eligible businesses may want to increase revenue recognition and defer expenses in the final deduction year.

Regular financial plan reviews

Regular reviews of financial plans ensure that clients’ strategies remain aligned with their goals and the changing tax landscape. Tax advisers should conduct reviews annually or more frequently during periods of significant change to assess:

• The impact of potential tax changes on clients’ goals; and
• Whether existing plans still align with clients’ risk tolerance and timelines.

Frequently reviewing plans ensures that tax advisers can address changes promptly, giving clients confidence that their financial strategies remain robust in an uncertain environment.

Example 7: A tax adviser working with a business owner who is hoping to sell their business in the next five years should review exit strategies annually to ensure any potential sale meets the client’s goals and is structured in the most tax-efficient manner, including considering potential changes in tax law.

Communication and trust building

Open and transparent communication is essential for maintaining trust during uncertain times. Tax advisers should:

• Provide clients with regular updates on potential policy changes and their implications;
• Offer clear, actionable advice on steps clients can take to mitigate risks; and
• Reassure clients by highlighting the steps they are taking to protect their financial future.

Example 8: A tax adviser might hold regular webinars or workshops to explain potential policy changes and answer client questions. This builds trust and ensures clients feel supported and well informed.

Long-term perspective and general support

Clients often worry about the immediate impact of tax policy changes, but maintaining a long-term perspective is essential. Tax advisers can help clients navigate uncertainty by:

• Encouraging clients to stay focused on their long-term goals;
• Providing education and general support to help clients avoid panic-driven decisions; and
• Reinforcing the importance of sticking to a well-considered financial plan.

Example 9: When clients express concerns about potential tax changes, a tax adviser might recommend taking a holistic view and remind them of their long-term goals.

Strategies for the road ahead

Advising clients during uncertain times requires a combination of knowledge, communication, flexibility, and empathy. By staying informed about potential tax policy changes, being strategic with tax planning, and communicating effectively, tax advisers can help clients navigate the challenges posed by the upcoming elections and the sunset of the TCJA in 2025. Proactive planning, scenario analysis, and a focus on tax-efficient strategies will help clients make informed decisions and protect their financial futures, regardless of what changes lie ahead.

Contributors

Mark Gallegos, CPA, MST, is partner, Tax Services, with Porte Brown LLC in Elgin, Ill., and Kasey Pittman, CPA, MST, is the director of tax policy at Baker Tilly US LLP in its Washington national tax practice. Brandon Lagarde, CPA, J.D., LL.M., is partner, Tax Services, with EisnerAmper in Baton Rouge, La. Gallegos is a current member, Pittman is a past member, and Lagarde is immediate past chair of the AICPA Tax Practice Management Committee. For more information about this column, contact thetaxadviser@aicpa.org.