As we approach a new year, the stage is set for 2025 to be a year we should expect see a significant legislative tax package. Not only is the Republican party poised to take the helm of both Congress and the Presidency, but many key tax provisions in 2017’s TCJA are set to expire at the end of 2025.
The incoming Trump administration and Congress face the task of addressing these sunsetting tax provisions while also taking into considerations the tax proposals the President-elect made along the campaign trail. Given that Republicans will not command a sufficient majority in the Senate to override a filibuster, it is anticipated that any tax legislation will necessitate passage through the budget reconciliation process—a procedure previously employed for both the TCJA and 2022’s Inflation Reduction Act. As such, any legislation that is passed cannot increase the deficit for a year outside of the ten-year budget window. Navigating this limitation can require a combination of tax cuts with sunset clauses as well as accompanying offsets, like the TCJA’s $10,000 cap on the State and Local Tax (SALT) itemized deduction, for example.
The Tax Policy Center estimates the cost alone of extending the TCJA for ten years is $4.6 trillion, and other estimates range even higher. Therefore, it is most likely that only select provisions in the TCJA will be considered for extension in order to accommodate the passage of other priorities within the Trump administration’s agenda. The Trump team has initially indicated their intentions concerning several of these prominent sunsetting provisions:
- The 20% 199A Qualified Business Income deduction for pass-through entities and sole proprietors: Trump would extend this deduction.
- Phasedown of bonus depreciation on qualified asset additions (40% deduction in 2025): Trump would reinstate 100% bonus depreciation.
- $10,000 SALT Cap: Trump would eliminate or increase the limit.
- The increased Estate and Gift Lifetime Exemption ($13,990,000 in 2025): Trump would extend this higher exemption amount.
- Higher standard deduction for personal taxpayers, the elimination of personal exemptions, and the increased child tax credit: Trump would extend all three measures.
- Preferential capital gain treatment for Qualified Opportunity Zone investments: Trump would extend this treatment.
Beyond the TCJA’s expiring measures, the President-elect has outlined an ambitious tax agenda that includes exempting Social Security benefits, overtime pay and tip income from income taxes, reinstating immediate expensing of domestic research and development expenditures, and taking the current C Corporation tax rate of 21% down to 15% for companies that produce products in the United States. Additionally, Trump aims to revisit and potentially retract some of the energy and electric vehicle credits and incentives contained in the Inflation Reduction Act, as well as impose broad based tariffs on imports, alongside increasing tariffs on imports from China.
How these proposals playout will remain to be seen. The incoming Senate Majority Leader, John Thune (R-SD), has suggested using a two-bill approach, while many are skeptical that two bills of this magnitude can advance through the budget reconciliation process in one year. Regardless of approach, it is clear that a major tax package will be a priority for the new Administration and Congress, alongside funding for border enforcement and reform of energy incentives.
As these legislative developments progress, your RKL team is committed to providing you with timely updates, ensuring you remain well-informed about the potential impact on your business’s tax situation. There may be opporunities in 2025 to accelerate or defer taxable income to capitalize within the evolving tax landscape.
