Federal Tax Planning Strategies

What are the TCJA corporate tax provisions?

While several of the TCJA corporate tax provisions are permanent, businesses should prepare for federal tax updates for corporate taxpayers post-TCJA. Below, we offer a comprehensive guide to federal tax policy changes under the TCJA, including those expiring TCJA business tax deductions.

Corporate tax rate changes

Prior to the 2017 tax law, the U.S. followed a graduated tax rate structure, meaning that corporations were taxed at different rates depending on their taxable income. This was anywhere between 15%- and 35%.

The TCJA eliminated the graduated corporate tax structure and replaced it with a flat 21% rate. Republican lawmakers argued that a flat-rate system made the tax code easier for corporations to understand and comply with, and that a 21% rate was more closely aligned with international standards.

However, lowering the corporate tax rate caused a decline in corporate tax revenues, contributing to increased federal deficits. President Trump has proposed further cutting the corporate tax rate to 15% for U.S. companies that make their products domestically. If implemented, tradeoffs would need to be made to address a ballooning national debt.

Business interest expense deduction limits

Business interest, as defined by §163(j), is “any interest paid or accrued on indebtedness properly allocable to a trade or business” (excluding investment income).

The TCJA limited the deduction for net business interest expenses to 30% of a taxpayer’s adjusted taxable income (ATI), with an exemption for small businesses. Although the

CARES Act temporarily increased the ATI portion of the limitation from 30% to 50% of ATI for tax years 2019 and 2020, the statute’s current iteration is the same as it was in 2018, before the CARES Act. Section 163(j) stipulates that the amount of deductible business interest expense in a tax year cannot exceed the sum of:

• The taxpayer’s business interest income for the year
• 30% of the taxpayer’s ATI for the year
• The taxpayer’s floor plan financing interest for the year

Net operating loss carryback and carryforward periods and limitations

A net operating loss (NOL) for a taxable year is equal to the excess of deductions over gross income, computed with certain modifications. It approximates a taxpayer’s actual economic loss from business-related expenses and is determined under the tax law applicable to that year.

Taxpayers may not carry back any NOLs arising in tax years after 2020 but can carry forward those NOLs indefinitely. NOLs arising in tax years 2018 through 2020 can be carried back for up to five years and carried forward indefinitely. Finally, NOLs arising in tax years before 2018 can be carried back two years and carried forward for 20 years.

Losses arising in tax years after 2017 and carried forward to tax years after 2020 can offset only up to 80% of taxable income. Losses arising in tax years before 2018 are not subject to the 80% limitation.

Business meal and entertainment expense deductions

The TCJA generally eliminated deductions for business entertainment expenses, though limited exceptions apply. Taxpayers may still deduct 50% of the ordinary and necessary food and beverage expenses associated with operating their trade or business. Notably, food and beverages provided at an entertainment activity remain deductible if the cost is separable from the cost of entertainment. There are six exceptions to the 50% limitation on food and beverage expenses under §274(n)(1).

Expiring TCJA tax benefits for corporations

Section 174 R&D expense amortization

• TCJA provision: The 2017 tax law required that businesses amortized their R&D expenses over five years and foreign R&D expenses over the course of 15 years. Pre-TCJA, businesses could fully deduct R&D costs each year.
• Impact of TCJA expiration: The amortization requirement will remain in effect after 2025, unless Congress amends it. The Wyden-Smith bill seeks to reinstate immediate expensing, but it is languishing in the Senate.

Section 163(j) interest expense limitation

• TCJA provision: Businesses face stricter limits on deducting interest expenses, capped at 30% of adjusted taxable income (ATI).

• Impact of TCJA expiration: After 2025, unless Congress acts, businesses will have less wiggle room to deduct interest expenses, which could increase the tax burden for industries which have a high debt load and capital expenditures.

Section 168(k) bonus depreciation

• TCJA provision: Businesses could immediately claim a 100% depreciation deduction on qualifying property and equipment in the year the asset was placed in service. That maximum amount expired in 2022 and is phasing out by 20% until the write-off expires at the end of 2026.
• Impact of TCJA expiration: Unless Congress acts, the phase-out schedule will reach 0% by 2027, reverting back to pre-TCJA rules requiring businesses to depreciate assets over their standard recovery periods.

CHIPS Act

The Creating Helpful Incentives to Produce Semiconductors (CHIPS) Act of 2022 introduced a new credit for investments in semiconductor manufacturing: the Advanced Manufacturing Investment Credit. Eligible taxpayers may claim a credit equal to 25% of their qualified investment for the tax year in an advanced semiconductor manufacturing facility. Unlike similar credits, which include only §1245 property, this credit includes §1250 property. Companies may elect to treat the credit as a direct payment against tax liability for the year, effectively making the credit refundable.

Companies intending to claim this credit will need to pay attention to certain nuances, including the transition rule and various effective dates with respect to when the property was placed in service, such as when construction began, and which costs were incurred prior to the enactment date.

This credit sunsets quickly. It generally applies to property placed in service after Dec. 31, 2022, but doesn’t apply to property placed in service after Dec. 31, 2026.

Inflation Reduction Act corporate tax credits and incentives

Signed into law in August 2022, the Inflation Reduction Act (IRA) is a climate bill that included new tax credits and extended certain existing credits designed to incentivize businesses and individuals to boost their use of renewable energy and reduce greenhouse gas emissions.

The IRA created several corporate tax incentives and updated provisions, including:

• An increase to the limit that qualified small businesses may elect to treat as a research credit against their payroll tax liability from $250,000 to $500,000
• Imposed a corporate alternative minimum tax (CAMT) equal to the amount that 15% of a corporation’s adjusted financial statement income (AFSI) exceeds its regular tax liability plus base erosion and anti-abuse tax (BEAT) liability
• Expanded the production tax credit (PTC) to include certain qualified solar and wind facilities

Below, we highlight changes to existing corporate tax provisions implemented by the IRA, new federal tax provisions introduced by the IRA, and IRA tax credits that are likely targets for repeal during upcoming negotiations to extend the TCJA.

Changes to foreign tax credit limits

The foreign tax credit is designed to relieve taxpayers from double taxation when income is subject to both U.S. and foreign tax. The TCJA made significant changes to the foreign tax credit rules. Subject to various limitations, the amount of tax paid to foreign countries and

U.S. possessions on foreign-source income offsets any U.S. tax that would be paid on the same income.

Both direct and indirect foreign tax credits are possible. However, foreign tax credit rules limit the amount of annual U.S. tax on foreign-source taxable income as calculated under U.S. tax principles. Thus, if the U.S. corporation pays more tax to the source country on the foreign-source income than is due to the U.S. on the same foreign-source income, the U.S. will limit how much of the foreign income taxes paid to the source country can be used as credits against U.S. tax liability.

Increased research and development investment credits

For tax years beginning Jan. 1, 2022, taxpayers must capitalize and amortize research and development (R&D) expenses over five years (15 years for R&D performed outside the U.S.). This is in stark contrast to the law for the past 70 years, which allowed immediate expensing of these investments. However, other paths still offer more immediate tax benefits, namely the R&D tax credit (§41).

The R&D tax credit is a dollar-for-dollar reduction against a taxpayer’s tax liability for qualified research expenditures for the tax year. The IRA doubled the amount of the credit (from $250,000 to $500,000) that qualified small businesses can use to offset payroll taxes for tax years beginning after 2022. Eligible research costs include those paid or incurred for research conducted by the taxpayer as well as research conducted on the taxpayer’s behalf.

While the TCJA didn’t make significant changes to §41, the benefit of the research credit increased due to the reduction in the corporate tax rate (i.e., a smaller §280C “haircut” of 21% as opposed to 35%, historically). Corporate tax teams can use this important tool to help maximize their company’s value.

New corporate alternative minimum tax on adjusted financial statement income

While the TCJA repealed the corporate alternative minimum tax (CAMT), the IRA added a new CAMT on an applicable corporation’s adjusted financial statement income (AFSI), which is essentially the corporation’s book income. Under §55 – §59, the CAMT is imposed on C corporations that are “applicable corporations” for taxable years beginning after 2022.

An “applicable corporation” is any corporation that meets an average annual AFSI test for one or more taxable years before the current taxable year but ending after Dec. 31, 2021. The AFSI test is met if the corporation’s average annual AFSI for the three-taxable-year period ending with that taxable year exceeds $1 billion.

For corporations that are members of a foreign-parented multinational group, the AFSI test is met if the average AFSI for the three-taxable-year period ending with that taxable year exceeds $100 million for the corporation itself and $1 billion for the foreign-parented multinational group. The CAMT is the amount by which a corporation’s tentative minimum tax for the taxable year exceeds the sum of its regular tax for the taxable year plus any base erosion and anti-abuse tax (BEAT). Tentative minimum tax is equal to the excess of 15% of AFSI over the CAMT foreign tax credit.

Proposed CAMT rule updates

In September 2024, the Treasury and the IRS issued proposed rules under §56A, §59 and §1502 (REG-112129-23, 89 Fed. Reg. 75,062). The proposed rules provide new guidance in many areas, including, but not limited to:

• Related party and CAMT avoidance transactions
• Hedging and depreciable property
• Removal from applicable corporation status depreciable property
• Partnership contributions and distributions

The applicable date for each proposed rule varies; some rules don’t go into effect until a final rule is published in the Federal Register, providing taxpayers with additional time for compliance.

New excise tax on stock repurchases

The IRA also added a new, nondeductible 1% excise tax on the fair market value of stock repurchased by a publicly traded U.S. corporation (including affiliate acquisitions) during the taxable year. The tax also applies to certain affiliate acquisitions or repurchases of publicly traded foreign corporation stock. The fair market value of stock repurchases is reduced by the value of shares issued by the corporation during the same taxable year.

A repurchase is defined as a §317(b) redemption or an “economically similar transaction.” There are numerous exceptions to the tax, including a de minimis exception where total stock repurchased during the taxable year does not exceed $1 million. Treasury and the IRS released interim guidance in Notice 2023-2, which taxpayers can rely on until proposed regulations are issued. The guidance expands on the statutory exceptions, clarifies the meaning of “repurchase,” creates a funding rule for affiliate acquisitions, and provides timing and valuation rules.

This new excise tax is effective for stock repurchases occurring after Dec. 31, 2022. Companies with stock repurchase programs or M&A activity should pay close attention to updates regarding the new excise tax, including forthcoming proposed regulations.

Potential IRA energy credit repeals

Since the IRA was enacted, Republican lawmakers have repeatedly tried to repeal the IRA either in total or in parts, claiming that energy tax credits are too costly. A complete repeal of the IRA will likely face political challenges; instead, Republican officials have proposed rescinding electric vehicle (EV) subsidies and energy credits.

Estimated cost of energy tax credits 2022-2031

Republican lawmakers are eyeing cuts to corporate tax credits to pay for extending other tax breaks during the 2025 negotiations. Here are the cost estimates between 2022 and 2031. Source: CBO.

Other energy credits – such as those related to carbon sequestration, biofuels, hydrogen, and nuclear energy – have spurred new facilities and jobs in districts represented by GOP lawmakers. Some GOP lawmakers have already said they’d defend these credits.

Here’s a look at what may happen to specific IRA energy credits:

Electric vehicle credits

The IRA included multiple tax credits for EV purchases, charging infrastructure, and domestic EV manufacturing. Federal support for electric vehicles has long irked Republican lawmakers, but it’s unclear which specific EV credits they may target. The Trump administration has discussed ending a $7,500 EV subsidy, which would offset billions of dollars in future revenue losses from extending TCJA tax provisions. The GOP-led House voted in September 2024 to limit the scope of new vehicles eligible for the clean vehicle credit under IRC Section 30D.

Clean electricity production and investment credits

The technology-neutral Clean Electricity Production (§45Y) and Clean Electricity Investment (§48E) credits for zero-emission electricity generation for property placed in service after 2024 are set to continue until 2032 to allow companies to plan for a 10-year investment. However, Republican lawmakers could shorten the life of these credits or put specific limitations on them, such as modifying them to make them less attractive for offshore wind projects, which Trump often criticizes.

Clean hydrogen production credit

Oil and gas companies have been showing increasing interest in hydrogen projects. In response, the Biden administration finalized the tax credit for producing low-emission hydrogen under §45V in early January 2025, loosening some stringent safeguards that the industry said could hurt domestic manufacturing of the fuel. The final rules provide pathways to receive the credit for hydrogen made from natural gas with carbon capture systems, methane, and renewable natural gas.

Buying and selling energy tax credits

The climate law’s provisions allowing companies to sell their tax credits are popular among businesses and corporate taxpayers, which will likely save them from a rollback. Tax credit transfer platform Crux estimated more than $16 billion in transfer deals would happen by the end of 2024, double the 2023 activity.

TCJA international tax provisions

Global intangible low-taxed income (GILTI)

Global intangible low-taxed income is a deemed amount of income derived from controlled foreign corporations (CFCs) in which a U.S. person is a 10% direct or indirect shareholder. It is a newly defined category of foreign income introduced by the TCJA and effectively imposes a worldwide minimum tax on foreign earnings.

U.S. shareholders of CFCs are subject to current taxation on most income earned through a CFC in excess of a 10% return on certain tangible assets of the CFC – with a reduction for certain interest expenses. GILTI inclusions are reduced by a special deduction and a partial foreign tax credit. But foreign tax credits are limited annually to the amount of U.S. tax on foreign source taxable income as computed under U.S. tax principles.

For tax years after 2025, effective GILTI tax rates will rise to 13.125%, unless Congress modifies this international tax provision.

Foreign-derived intangible income (FDII)

Foreign-derived intangible income is the portion of a domestic corporation’s intangible income derived from serving foreign markets. Under the broad definition of FDII, a corporation’s foreign-derived income may include sales of intangible or tangible products to a foreign person for use outside the U.S., as well as income derived from a broad range of services, with some exceptions.

The FDII deduction was introduced by the TCJA and applies to taxable years beginning after 2017. Similar to GILTI, unless Congress acts, then the FDII effective tax rate will increase to 16.4% after 2025.

Base erosion and anti-abuse tax (BEAT)

Also enacted as part of the TCJA, the base erosion and anti-abuse tax is essentially a minimum tax that applies to certain multinational corporate taxpayers that make “base erosion payments” to foreign related parties. These payments can be deductible payments such as interest, royalties, or service payments.

The BEAT rate for 2018 was 5%. It rose to 10% in 2019 and is set to increase to 12.5% starting in 2026. BEAT is not an alternative to income tax; it’s an additional tax. It also seeks to discourage U.S. and foreign corporations from avoiding tax liability by shifting profits out of the U.S.

Unless Congress enacts legislative changes, BEAT will climb after 2025, rising to 12.5% for businesses and 13.5% for bankers and dealers, with credits no longer applying.