CFOs Must Consider All Scenarios With Tax Reform Uncertain

Partner Bob Lickwar was recently interviewed by CFO Brew about how CFOs need to make decisions based on current tax realities and understand they could pivot if there are drastic changes in the near future.

Many business-focused provisions of the TCJA are set to expire at the end of 2025 sans Congressional intervention, including the deduction for pass-through business income (aka the “199A Deduction”), according to a report from the Congressional Research Service. A provision allowing bonus depreciation on business properties winds down at the end of 2026, and a deduction for excess business losses that was extended by the Inflation Reduction Act does not expire until the end of 2028.

There’s also “bipartisan support” to scrap a TCJA provision that requires companies to capitalize and amortize research and development costs over five years rather than deduct R&D expenses immediately, according to a report from RSM. Republicans also support reversing another TCJA provision in order to create “a more favorable deduction limit” on business interest expenses, according to the report.

“[Organizations] have to be cognizant of the fact that they need to plan with the law that's in effect now, and right now, at least through the end of 2025 we're dealing with what we have,” with the TCJA, Bob Lickwar, partner and tax managing director at UHY, told CFO Brew.

Lickwar pointed to failed legislation from earlier this year that would have made some of these changes and more. This underscores the importance of having a backup plan—even though “everybody thought” the bill would pass, as Lickwar recalled. “I put so many returns on extension just assuming that it was going to [pass], but by the same token, I built in the fact that it might not, and as it turned out, it didn't,” he said.

Lickwar advised that businesses rely on their controller or other tax professionals to keep them informed on the latest tax talks on Capitol Hill. He said things may end up moving quickly and perhaps down to the wire.

Organizations must also weigh the benefits and risks of making certain decisions now or holding off in the hopes that tax reform happens next year, Lickwar said. He used the purchase of a new company vehicle as an example. Buying it this year guarantees the company will get 60% bonus depreciation. Tax reforms may bump the bonus depreciation to a more favorable 100% next year. But if nothing comes to fruition and a company waits, they may be stuck at that lower 40% depreciation bonus in 2025.

“We're putting things out there so that the client can make an informed decision,” Lickwar said, “working with the law that we have now with an eye towards what may potentially happen.”

Read the full interview published by CFO Brew