Hartford Business Journal

INDUSTRY OUTLOOK | BANKING & FINANCE HARTFORDBUSINESS.COM | JANUARY 13, 2025 29 breaches, M&T's Micalizzi said. "These institutions face increasing pressures to stay ahead of evolving cyber risks, which threaten finan- cial stability and customer trust," he said. "Enhancing cybersecurity safeguards will be crucial for maintaining client confidence and mitigating risk in an increasingly digital banking landscape." Vanotti said despite banks' best efforts, customers continue to fall for scams. "The criminals are good at preying on vulnerable consumers," she said. "AI is going to make this even easier for bad actors. We can't over communicate to our customer base that they need to trust their banker and be honest when we question suspicious transfers and transactions." AI/tech investment Speaking of artificial intelligence, technology investment will continue to be a priority for growth-minded banks, executives said. There will be a particular focus on adopting AI tools that enhance oper- ational efficiency, improve customer experience and manage risk. "Key applications will include fraud detection, credit risk assessment, automation of regulatory compliance, personalized customer service, and process automation," said Windsor Federal's Kettles. "Banks will begin adapting these solutions with caution to ensure security of non-public data, and must also meet the challenge of maintaining compliance with stringent regulatory requirements that will require monitoring, valida- tion and auditing of the AI systems and process." Nutmeg's Holt said members increasingly expect seamless, mobile-first experiences, and he's focused on digital tools that will provide simpler money movement, online loan applications, financial education resources and account management features. However, increasing use of tech- nology does not mean financial institutions can abandon human touch, Vanotti said. Torrington Savings will be exploring how AI can support basic functions so the bank can redeploy its workforce into more engaging and value-added roles. Chatbots and AI assistants will become more prevalent in call-center environments, she said. Additionally, Torrington Savings will launch a financial management tool to help consumers improve their finances through monitoring, budgeting and more, Vanotti said. PERCENTAGE OF UNPROFITABLE CT-BASED BANKS *There were 29 Connecticut-based banks in 2024 and 2023; 31 in 2022; 32 in 2021; 34 in 2020; and 37 in 2019. ** Each year represents earnings data from January through September. | Source: Federal Deposit Insurance Corp. data Percentage of unprofitable banks* Percentage of banks with earning gains 2019 2020 2021 2022 2023 2024** EXPERT'S CORNER Trump tax cuts likely to be extended or made permanent — with some potential changes By Andrea Harrington C hange is coming to Wash- ington, D.C. this month, as Donald Trump is once again sworn in as president and Republican majorities take over in the House and Senate. Yet, at least one thing could be staying in place: the tax reforms that Trump and his party delivered in the Tax Cuts and Jobs Act (TCJA) of 2017. The tax package — which includes lower tax rates, expanded deductions, and new tax benefits for businesses — has many provisions that are sched- uled to sunset at the end of 2025. President-elect Trump campaigned on extending the cuts or making them permanent. Single-party control of the federal government makes that a very real possibility, especially if Republicans can agree on how to pay for the tax cuts. At the very least, some key provisions of the act are now likely to survive past the end of the next calendar year. Here's a look at what this could mean for businesses and taxpayers. What could be extended? The temporary tax package was crafted with a straightforward mission: fuel economic growth by lightening tax burdens on both individuals and businesses. A few of the TCJA's provisions — the 21% corporate tax rate and a change to the inflation adjustment methodology for individuals and estates — were permanent. The rest will need a vote to carry on past 2025, including the reduc- tion of the top income tax rate from 39.6% to 37%, the doubling of the standard deduction and the elimina- tion of personal exemptions. The TCJA also capped state and local tax (SALT) exemptions at $10,000 and increased the exclusion threshold for the alterna- tive minimum tax from $110,075 to $140,300. For small businesses, the act's qualified business income deduction may be most critical. This deduction applies to many businesses that operate as pass-through entities and are taxed at the individual rate. Those that qualify — including LLCs, partnerships and S corps — currently receive a 20% income tax deduction. This provision was included to level the playing field between these businesses and corporations benefit- ting from the permanent 21% corpo- rate tax rate. With the end of TCJA's temporary provisions on the horizon, some have been considering reorganizing into a traditional C corp. An extension of the qualified business income deduc- tion would make that unnecessary. Businesses have also been preparing for the end of bonus depreciation. This allowed a first- year write-off for the purchase of capital assets. The provision started a phase-out in 2023, but could now be brought back for 2026 and beyond. What might change? While many parts of the TCJA are likely to be extended, some aspects may spark debate — particularly the research and development (R&D) deduction and child tax credit. The R&D deduction is intended to be the budget balancer of TCJA, which means that it was included to pay for the cuts on the other side of the ledger. As tax policy, it has come to be viewed rather negatively. Prior to TCJA, businesses could fully deduct their R&D expenses in the year they were incurred, giving startups and tech companies a huge cash flow advantage when devel- oping new products. But the TCJA changed that, requiring companies to spread these deductions over a number of years. There is bipartisan support to bring back the first-year deduction, as many see it as a key driver of innovation and growth in the U.S. Then there is the child tax credit. The TCJA bumped this credit up to $2,000 per child. However, if the act sunsets, the credit would drop back to $1,000. Some Republicans are pushing to keep the credit at $2,000, or even raise it — Vice President-elect JD Vance suggested boosting it to $5,000 per child. Such an increase would also need to be paid for. While much remains unknown, it appears likely that taxpayers and businesses will continue to operate under at least some of the TCJA's provisions after 2025 — and that they will do so with a much better idea of what the future holds. Andrea Harrington is a partner at accounting and advisory firm Fion- della, Milone & LaSaracina LLP (FML CPAs). Andrea Harrington 100% 80% 60% 40% 20% 0%

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