Now that President Trump is in the White House, and a new and differently configured Congress is back in session, our attention can turn to the political posturing and negotiating from Republicans, Democrats, and Independents on any number of pressing federal policy issues (budget and spending, border security, immigration, international relations, defense, energy reform, tariffs, Social Security, etc.).
One such issue on many taxpayer’s minds is the expiration of many of the Tax Cuts and Jobs Act provisions enacted the last time Republicans controlled the Administration and both chambers of Congress from January 20, 2017, to January 3, 2019. These provisions, if allowed to expire, would result in increased taxes to most individuals. However, if these provisions are fully extended, it could create a significant increase to the current deficit.
The odds are good that a tax bill will be enacted before December 31, 2025. However, the journey to arrive at that legislative destination may not be short – and there will likely be many twists, turns, and detours along the road. If what happened in 2017 with the Tax Cuts and Jobs Act is any indication, we may not see a final signed bill until much later in 2025. So – fasten your seatbelts and be prepared for many starts and stops along the way; this journey will be like traveling a long distance with children and listening to “Are we there yet?” during the entire trip. Only now, it will be: What will be in the final legislation? and, When will it be passed?
What are some of the obstacles that may be encountered
- Determining the tax provisions to include and exclude from the legislation.
- Determining the cost of the legislation. The impact on the deficit could range between a $3 – $7 trillion reduction in revenue over ten years.
- Determining how the legislation will be paid for and who may end paying for the tax cuts (there are often winners and losers in any tax legislation changes).
- The reconciliation process requirements necessary to pass legislation favored by only one party.
- Reconciling conflicting priorities among Republicans. The Wall Street Journal is reporting that frustrations among Republicans are already being observed. The slim margin Republicans enjoy in both chambers could be an obstacle.
The tax items most often mentioned, and which seem likely to be included in legislation
- Keeping the lower income tax rate and brackets of the Tax Cuts and Jobs Act.
- Keeping the Section 199A business income tax deduction.
- Maintaining or increasing the level of child tax credits.
- Keeping the larger standard deductions.
- Keeping existing gift and estate tax regime.
Note that not all expiring 2025 provisions will increase taxes. Some items, such as limits on mortgage interest deductions and limitation on excess businesses losses provide a tax benefit to some upon expiration.
In addition to the items mentioned above, diverse types of taxpayers and industry groups desire other changes; even President Trump advocated for certain changes during the run-up to the election. These include:
- Required capitalization (and amortization over at least five years) of all research and development expenses.
- Easing of Section 163(j) interest expense limitations by allowing depreciation and amortization expenses in the calculation of adjusted taxable income.
- Extension of bonus depreciation provisions.
- A reduction in the corporate income tax rate.
- Tax-free treatment of tip income and overtime pay.
- Tax-free treatment of Social Security benefits.
- Allowing tax deductions for the cannabis industry.
- Rollbacks of energy credits.
- Expansion of the state and local tax deduction limitation.
A big question is how tax reduction items will be paid for. That answer is currently unclear.
A House Budget Committee 51-page list of potential policy options has become public. This list contains a couple hundred items, with brief descriptions, that either reduce or increase spending/deficits. These represent many of the items that have been talked about but not necessarily included in any bills. Some of these items will create controversy (elimination of the home mortgage interest deduction for example) and will not make it near final legislation.
Taxpayers should be prepared to hear numerous proposals, and multiple iterations of draft bills before a final bill is drafted and voted on. Many individual items will be supported by Republicans and panned by Democrats (and vice versa). We all should be used to this drill by now.
But – taxpayers can do at least two things. First, continue to pay attention to proposals and educate themselves on options and impact, so that appropriate actions can be taken when a new bill is enacted. Second – reach out to your Congressional representatives and let them know how you feel about the proposals.
Schneider Downs will continue to monitor 2025 federal (and state) legislative proposals and will be providing further updates, analysis, and action items regarding these issues as we move through 2025.
About Schneider Downs Tax Services
Schneider Downs’ tax advisors have experience and expertise in a wide range of industries, including Automotive, Construction, Real Estate, Manufacturing, Energy & Resources, Higher Education, Not-for-profits, Transportation and others. Our industry knowledge and focus ensure the delivery of technical tax strategies that can be implemented as practical business initiatives.
To learn more, visit our dedicated Tax Services page.
