Decoding the Bipartisan Tax Framework’s Revival and the Fate of the 2017 Individual Tax Cuts
Going back to 2017, I sat in a large conference room with everyone popping champagne after the Tax Cuts and Jobs Act was signed into law. When I looked at both sides of the spoke of the present, I saw nothing but “permanent” tax savings coming from this legislation. But then as I reviewed the fine print of the law, I learned that the proverbial clock was already ticking. Fast forward to today—this temporary benefit (The deductions that were to expire at the end of 2025) will soon appear to be a spike on a train going to hit some unsuspecting person anywhere in America who does not prepare for it.
The Problem: With the tremendous tax cliff coming up around 2026, with estimates of tax bills for either individual that will increase and possibly erode all of the economic gain achieved because of the TCJA.
The Constraints: Legislative gridlock, shifting political agendas, and the complexity of the proposed tax extension bill associated with the provisions of the 2017 TCJA for 2026 make a final outcome highly unpredictable.
The Solution: Stop waiting for Congress to act and build a model for your business that portrays a “what-if” worst-case scenario for your company’s financial model while allowing flexibility in maintaining any liquidity.
Prerequisites and Context
A basic understanding of your existing effective tax rate, your company’s debt-to-equity ratio, and what amount you spend on research and development is available on the internet.
Additionally, please have available for reference your previous three years of tax returns and stay in contact with your CPA who understands these situations as they relate to the Senate Finance Committee legislative process.
The Looming Tax Cliff: Understanding the Bipartisan Framework
The Legislative Landscape: Why 2026 is the Critical Deadline
The 2017 Tax Cut Act isn’t just an entire set of permanent tax reforms; it is the group of temporary provisions included for legislative purposes with the limitations of the budget reconciliation process in mind. Once 1/1/2026 hits, many of the temporary provisions in the Act will expire/ sunset unless Congress enacts a new tax extenders bill. Congress is facing the prospect of increased individual income tax brackets and the expiration of many business tax incentives.
Assessing Your Exposure: Identifying Impacted Business Structures
If your business operates as a S-Corporation, Limited Liability Company, or Partnership, you are at risk. Therefore, the amount of taxes your business pays is tied to individual rates, which will revert back to pre-2017 levels and, as a result, you need to evaluate your business structure today. Are you receiving cash flow support from the currently available pass-through deduction under Section 199A? If the deduction expires, your taxes could increase dramatically at 20% in just 1-day.
Navigating the 2017 TCJA expired provisions 2026 extension bill
Analyzing the Senate Finance Committee markup May 2026
The Senate Finance Committee will be the indicator of the direction of future tax policy for the bi-partisan tax extenders legislation. Watch how the Committee addresses the R&D amortization fix. As it stands today, businesses have to amortize R&D costs over five years instead of being able to expense the R&D costs in the year they occurred. If the Senate Finance Committee does not enact a retroactive effective date for the R&D amortization fix, it will result in further cash flow difficulties for your business.
Strategic Planning for the Potential Tax Extenders Package
You have to diversify your investment portfolios if you hope to maximize your tax refund. Instead of waiting for the big tax extension bill to hit Congress, you should research how many other tax extension proposals will potentially pass. It would be a waste of time to bet on one-last-minute-hero.
| Provision | Current Status | Projected 2026 (No Extension) |
|---|---|---|
| Top Individual Rate | 37% | 39.6% |
| Section 199A Deduction | 20% | 0% |
| SALT Deduction Cap | $10,000 | Expired (Potentially Unlimited) |
Operational Adjustments for Section 199A and R&D Amortization
Maximizing the Section 199A pass-through deduction before sunset
I had an expiring credit and an increased tax statement based on it — thus resulting in me paying more for taxes than what I would have saved if I had purchased capital equipment. This taught me that I’d Never base my decisions about running a business on the basis of how much tax I would save or lose by buying new machines.
Mitigating the R&D amortization fix and interest deductibility cap
Addressing Individual and Household Tax Volatility
The Child Tax Credit negotiation and its effect on family-owned entities
Politicians use the Child Tax Credit to negotiate with others, not only as a means of getting votes from people who will benefit from receiving more money but also because this money assists families during economically challenging times so that the family business can continue operating. The increase benefits your family’s budget and, therefore, contributes to the overall financial health of the family owned business because less capital will be needed to support the family budget.
Planning for the potential expiration of the SALT deduction cap
The cap on the SALT deduction has created a great deal of work and uncertainty for the owners of businesses in states that have high taxes. If the cap goes away, business owners will have lower tax deductions, but this may not be true. As such, business owners should prepare their budgets for the year 2026 assuming the cap remains, and if it goes away, consider the extra cash flow to be a bonus rather than part of their baseline budget.
Undocumented Workarounds: Managing Liquidity During Legislative Uncertainty
Utilizing Tax-Advantaged Reinvestment Strategies for Capital Preservation
Cash will be king when there is tax reform. If business owners have capital gains and want to shelter those gains from taxation, they may want to look into Qualified Opportunity Zones. There are ways that can help you defer taxes, while reinvesting back into either your business or into real estate.
Leveraging Multi-Year Income Smoothing to Hedge Against Rate Hikes
With the anticipated increase in rates in 2026, consider “pulling forward” your income into the 2025 tax year. This is simply the act of accelerating the recognition of your revenue or taking your bonus now while tax rates are at a lower level. This is a gamble, and while it may be riskier than waiting for a tax increase to impact your net profit, it could be less risky as well.
Best Practices for Proactive Tax Compliance and Forecasting
Establishing a Rolling 24-Month Tax Strategy
Stop thinking of taxes as a one-time event each year. You should be developing a rolling 24-month forecast that gets updated quarterly. For example, when the Senate Finance Committee publishes a new draft, you should refresh your model that same week.
Coordinating with Financial Advisors for Legislative Pivot Points
Your CPA is not just someone who files your taxes; they are your strategist. The objective is to schedule a “pivot meeting” one month after any major legislative announcement. For example, if the 2017 TCJA expired provisions 2026 extension bill stalls, you will need to have your cash flow strategy prepared for any immediate pivots that could arise within 30 days.
Frequently Asked Questions
How should small business owners adjust their 2026 cash flow projections to account for the potential loss of the Section 199A deduction?
Presume it will be taken away. If your cash flow will support your business without the Section 199A deduction, then you are in a solid position categorically. The next step will be to develop different ways to increase your margins or reduce your overhead expenditures, starting today.
What specific actions should investors take if the interest deductibility cap is tightened in the upcoming legislative session?
Start De-Leveraging. If you currently have variable rate debt, consider getting fixed-rate debt or principal pay-downs to decline your overall interest expense so you will continue to remain significantly under 30% of EBITDA.
Will the potential extension of the 2017 TCJA provisions be retroactive, or should businesses prepare for immediate tax increases in January 2026?
You should always be conservative in your decision-making. Even when a bill is stated to be retroactive, you cannot run a business, based upon the opportunity that you will receive a refund. You need to begin budgeting accordingly for the higher tax rate effective January 1, 2026. However, if the extension passes in a retroactive form, treat it as a windfall and reinvestment opportunity.
