What Is the Status of the Tax Extenders Bill?

The U.S. tax code contains numerous provisions that are not permanent. These temporary credits, deductions, and regulations are collectively known as “tax extenders.” Because they have expiration dates set by Congress, they must be periodically renewed through legislation. This cycle of expiration and renewal creates uncertainty for taxpayers and businesses as they wait for Congress to act on policies that affect their financial planning.

Key Provisions in the Upcoming Tax Debate

With many provisions of the 2017 Tax Cuts and Jobs Act (TCJA) set to expire after 2025, Congress is expected to address a wide range of tax rules.

Provisions Primarily Affecting Businesses

A component of the tax debate is the treatment of several business-related tax rules.

• Restoring the immediate deductibility for domestic research and development (R&D) expenses. A recent law change required these costs to be capitalized and amortized over five years, altering cash flow for innovative companies. Previously, businesses could deduct these expenditures in the year they were incurred.
• Reinstating 100% bonus depreciation. This provision, which allows businesses to immediately deduct a large percentage of the cost of eligible equipment, began phasing down in 2023. Restoring it would encourage capital investment by reducing the after-tax cost of assets.
• Modifying the limitation on business interest expense deductions. A potential change would revert the calculation for deductible interest to a more favorable formula based on earnings before interest, taxes, depreciation, and amortization (EBITDA), rather than the current earnings before interest and taxes (EBIT).
• Addressing international tax provisions that affect multinational corporations. These include the rates for Global Intangible Low-Taxed Income (GILTI) and Foreign-Derived Intangibles Income (FDII), which are scheduled to change after 2025. The Base Erosion and Anti-Abuse Tax (BEAT) rate is also scheduled to increase from 10% to 12.5%.

Provisions Primarily Affecting Individuals

The state and local tax (SALT) deduction is currently capped at $10,000 per household. Potential modifications, such as increasing this cap, are a point of contention in tax legislation. Any change would primarily benefit taxpayers in high-tax states who itemize their deductions.

Another provision set to expire after 2025 is the 20% deduction for qualified business income (QBI). This deduction allows owners of pass-through businesses, such as sole proprietorships and S corporations, to deduct a portion of their income. The extension of this deduction is a focus of the debate.

Provisions for disaster relief are also common in tax legislation. For certain federally declared disasters, Congress has previously allowed affected taxpayers to deduct personal casualty losses without the usual requirement that they exceed 10% of adjusted gross income. This waiver also allows taxpayers who take the standard deduction to claim these losses.

Legislative Status and Timeline

Many individual and business tax provisions from the Tax Cuts and Jobs Act of 2017 are set to expire at the end of 2025. Congress is expected to consider tax legislation during 2025 to determine which of these provisions will be extended, modified, or allowed to expire. The final form and timing of any bill are unknown and will depend on political negotiations between the House of Representatives and the Senate.

Tax Planning and Filing Implications

When tax provisions expire but may be retroactively reinstated, taxpayers must decide on a strategy for filing their returns. One option is to file based on the law as it stands at the time of filing. If a tax bill is later passed with retroactive effect, taxpayers who already filed would need to file an amended return using Form 1040-X, Amended U.S. Individual Income Tax Return, to claim any new benefits.

Alternatively, taxpayers can file for an extension, which provides an automatic six-month grace period to submit the return. This approach can avoid the need for an amended return but requires the taxpayer to estimate their tax liability. Any expected amount due must still be paid by the original April filing deadline to avoid penalties and interest.

For businesses, the implications are complex, especially for provisions like bonus depreciation and R&D expensing that influence investment decisions. Legislative uncertainty can complicate financial forecasting. Businesses may need to prepare multiple tax scenarios to understand the potential impact of various legislative outcomes on capital expenditures.