SERIES: Master The Margin Episode 5 | Tax Reform Update: 2025 Changes to the Tax Cuts and Jobs Act

In 2017, the first major tax reform in over 30 years passed and it had a tremendous impact on independent pharmacies. 

Now, with the 2024 election right around the corner, many of these items could see a change! 

In this episode of Master The Margin, we’re taking a step back from exploring the Balance Sheet and diving into an urgent update on the Tax Cuts and Jobs Act.  

Scotty Sykes, CPA, CFP® goes over: 

• What’s in the Tax Cuts and Jobs Act.
• Updates to Tax Items That Affect Independent Pharmacies.  
• Election Impacts and Changes You Can Expect in 2025 tax reform. 

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Scotty Sykes, CPA, CFP®: Good morning, Scotty Sykes here with Sykes & Company and Master the Margin. Kathy is taking a break today and I’m going over the expiring Tax Cuts and Jobs Act. Let me rephrase that. I’m going to be going over the Tax Cuts and Jobs Act of 2017 and some areas that will be expiring if Congress doesn’t act next year, which there will be big tax reform next year with these changes scheduled to expire. So, there’ll be some changes next year for sure, but this is what’s on the table. And then I’m going to touch on quickly what Vice President Harris and former President Donald Trump are proposing so far in their campaigns here. 

So, I’m gonna share my screen here and hopefully you can see this. So, this is from the AICPA, which is Association of International Certified Public Accountants. So, this is shout out to them on their, on this information, this resource. So, this goes through the Tax Cuts and Jobs Act and the provisions that are scheduled to expire and when they expire.  

So individual here, these are, will be expiring at the end of next year. So, we’re gonna have the tax brackets for individuals. If nothing is done in Congress next year, which there will be something done, but depending on who wins the election. But these are scheduled to go back to the older brackets with the highest bracket at 39.6%. Right now, it’s at 37%. If Vice President Harris wins, it’s likely this is going to revert back to some of some sort, these higher rates. If Donald Trump were to win, I don’t believe they will be increasing these tax rates just based on what I’ve been seeing. The standard deduction of individuals they have in, you know, the Tax Cuts and Jobs Act increased that to $29,200 for married, filing jointly in 2024. These were back at like $13,000. So, a lot of taxpayers don’t even itemize anymore. They just get this larger standard deduction. This is scheduled to expire, and it’ll go back to the older standard deduction here of $13,000 married, filing joint, which was the 2018, prior to 2018 threshold. But that standard deduction is key for a lot of taxpayers out there, that larger standard deduction. Personal exemptions will, there’s no personal exemptions now with the higher standard deduction on the Tax Cuts and Jobs Act, but these will be, if nothing is done again in Congress, these will be, reverted back to being back in play.  

The child tax credit, we are at an increased maximum child tax credit of 2,000. And then there’s an additional credit of 1,400 per child. The thresholds were increased. The phase out thresholds were increased. So this will revert back if nothing is done, but both, former President Trump and Vice President Harris have said that, believe both of them have plans to increase this and expand this child tax credit. It was shown to be very beneficial to taxpayers.  

Some of these I’m not gonna focus on, the highlighted ones we will, that are more geared towards pharmacies here, but the increase in percentage cash contributions to charity. So, right now, it’s at 60% of AGI, so you can donate up to 60% of your AGI. If you go over that, it carries over to the next year, but previously it was 50%. So, they did increase that charitable donation write off, if you will, but that will be reverting back to 50% if nothing is done in Congress.

Now, this was a big one, the SALT. State and Local Taxes, it’s capped at $10,000 right now. And so, this is your state and local tax that you’re paying, and it’s capped at $10,000 on schedule A of your itemized deductions. So, with this cap, a lot of taxpayers are now using that higher standard deduction. Because their itemized deductions don’t reach that standard deduction maximum and this the SALT cap of $10,000 really impacts that. Previously before Tax Cuts and Jobs Act there was no cap on these deductions. I know there is talk in the tax world with reform where this will be on the table of some sort increasing it, keeping it, eliminating it. There’s mixed feelings about it. Of course, the higher tax states don’t like it. And so, we’ll have to see where this one goes, but there’ll be some changes here, I’m pretty sure, on the state and local taxes for your Schedule A.

Miscellaneous itemized deductions have been removed. The limit on itemized deduction was removed with the Trump Tax Cuts and Jobs Act and these were, you were allowed miscellaneous itemized deductions, but only up to 2% of AGI. They had to exceed 2% of AGI here. But this has now been removed. So, this will revert back again if Congress doesn’t act and same here with the limitation. There’s no limitation on your itemized deductions. Previously there was. So that would revert back.  

The AMT, pretty much, it’s gonna be rare for a taxpayer to now fall into this AMT, because the threshold, the exemption phases were so significant now under the Tax Cuts and Jobs Act. A lot of taxpayers did find themselves impacted by AMT previously. So, we’ll have to see where this one goes as well, but this would impact a lot of taxpayers and pharmacy owners. Let’s see, the estate and gift, so the estate tax exclusion, $13,610,000 adjusted annually for inflation. So this exclusion amount is significant. So many taxpayers do not have estate tax issues with this exemption amount, because it’s individual. So, if you’re married, married, it’s $26 million, $27 million, and so forth. But under previously, it’s going to be reduced for sure from $10 million per decedent to $5 million. So, more taxpayers will fall into this estate tax if they don’t do anything here in the estate and gift tax exemption area.  

Research and experimentation expenses. Pharmacies should be aware of research and experimentation and especially if you’re like a compounder and you’re doing some new and different types of compounds. These research and experimentation expenses, this is not the R&D credit. This is the R&E expenses two separate provisions of the tax code but the expenses have to be calculated and amortized written off over five years. A lot of taxpayers are not doing this when they probably should. There has been discussion in Congress previously in previous, you know, years and I know back in January they almost passed it to revert this back because it used to be fully deductible. But right now, you have to amortize this over five years and I’m sure this will be changing of some sort with tax reform because it’s gotten a lot of pushback in the tax world in the in the research and development world and businesses and so forth. So, this will, if nothing’s done, it will go back, and you’ll be able to fully deduct these expenses. But right now, you gotta calculate it and write it off over five years. And again, this has nothing to do with the R&D tax credit. The R&D tax credit is certainly still a viable credit for some pharmacies out there for sure. And just something to think about.

QBI deduction, big one here. First of all, we still see pharmacies missing this deduction, up to 20% of your qualified business income. I can’t tell you how much money we’ve seen pharmacies overpaying taxes because they’re missing this. You need to go back on your individual tax return and your K-1 and look and see if you’re able to take this, but pharmacies are not, in general, are not SSTBs. So, Rx is not SSTB, and an SSTB is Specified Service Trade or Business. So, make sure you’re paying attention to this on your individual business tax returns. Pharmacies are not SSTBs and therefore you should be entitled to, if over 90 – 95% of what you’re doing is filling scripts, you should be entitled to this deduction. And this will go away under the, if nothing’s done. But we have amended returns on this, so you can go back and amend tax returns for this if you’ve missed it. But 20% deduction is a big number, folks. This is a big one. A lot of money here. 

Work Opportunity Tax Credit, I some pharmacies take advantage of that. That’s gonna go away if nothing’s done.  

Bonus depreciation here. So, it’s right now at 2024. It’s at 60%. Then it goes to 40% next year, 20%, and then it’s phased out. Yeah, through 2026. So, in ‘24 right now, it’s at this 60%. And then, this will be, this is phasing down and, but you still have, you still have section 179 here that allows full write-off. But there’s some limits here that can’t do a bonus depreciation can do in terms of fully writing things off. Generally speaking, pharmacies still be able to write off that equipment, that a robot under ‘Section 179’ or at least a good portion of it here if you’re using bonus. The thing here is you got to watch out for the states and how the states follow bonus or Section 179 to maximize your situation. But bonus is changing and we’ll see what they do next year.  

Lastly, pull up Bloomberg, government giving Bloomberg a shout out here. Here are the proposals that Bloomberg has been able to put together here. So, Kamala Harris wants to increase the child tax credit to $3,600 from $2,000 here. So, again, she wants to follow with that tax credit increase. I believe they’re floating this idea as well, up to $5,000 for Donald Trump here. Expand the EITC credit, earned income tax credit. This is the healthcare, Obamacare, tax credit. Talking about exempting tipped wages here, Kamala Harris is saying that, Vice President Kamala Harris, former President Trump is also saying that. I think that’s going to be somewhat difficult to do. My own editorial there, but we’ll see what happens. Let’s see…So, Donald Trump obviously is going to continue a lot of the Tax Cuts and Jobs Act. Vice President Harris most likely will not most of those provisions. But obviously, Donald Trump will. Those ones we just went over that will be expiring. I imagine a lot of those are going to stay a lot of those would be updated and expanded if possible with a Donald Trump presidency, with a Kamala Harris presidency, I’m sure they would expire a lot of those and put in their own changes as well with increased tax rates, I’m sure, as they’ve said in the past. Let’s see, those are kind of the main things there. And then of course, if you’re a C corporation pharmacy out there, you’re currently at 21% tax rate. Trump wants to push that down to 15%. Harris wants to push that up to 28% here. And so that’s where it was at 35%. So, either way, no matter what, who wins the White House here, it’s still gonna be less than that 35%, whether it’s below current law of 21% or not, have to see. Who knows where they end up falling here. This is often a bargaining chip once they’ve put in, decided all those other proposals they wanna do, this kind of C-Corp tax rate kind of fills in the gap if you will and it’s very flexible. We’ll do 29% or 30% or we’ll do 17% or 19% you know whatever it is kind of what historically I’ve noticed.  

So, with that I just want to give you guys an update on Trump Tax Cuts and Jobs Act. You know what’s on the table now, the big issues that would impact you. There will be tax changes next year, so we will be digging into that for sure as it happens, as it unfolds, what it means for pharmacy owners. But a lot of, you know, obviously depending on what happens is going to be who’s in the White House here, who wins the White House, and you know what the mix-up in Congress is like to see what tax changes occur.  

So, it’s gonna be a fun one next year, and obviously we’ll keep you up to date as it unfolds. So, hope everybody enjoys this one and let us know if you have any questions. Thanks for listening.