With recent Republican victories in the U.S. presidential and senate races, significant tax legislation changes can be expected over the next 12 to 14 months, most notably with regard to the Tax Cuts and Jobs Act of 2017 (TCJA) since many aspects of the bill were not permanent provisions and are set to expire as of December 31, 2025.
Although Republicans will control both the Senate and the House of Representatives, tax policy changes will require 60 votes in the Senate or will need to use the reconciliation process to pass, similar to the TCJA.
Throughout his campaign, President-Elect Donald Trump discussed a wide variety of tax policies and proposals, including:
- Making TCJA permanent – As mentioned above, without 60 votes in the Senate, Congress would need to use the reconciliation process to enact legislative tax changes. The process would allow a tax bill to pass with 51 votes to avoid a filibuster but would impose limitations on increased spending or decreased revenues as a result.
- Individual tax rates – Currently set to expire at the end of 2025 and return to pre-TCJA levels, reestablishing the maximum tax bracket at 39.6%, an increase from the current 37%.
- Qualified Business Income (Section 199A) deduction – Currently allows eligible self-employed individuals and pass-through entities (S corporations and partnerships) a tax deduction equal to 20% of qualified business income. It also levels the playing field between self-employed and pass-through entities versus C corporations. This deduction is set to expire with the TCJA as of December 31, 2025.
- State and Local Tax cap (“SALT Cap”) – Also set to expire at the end of next year, this limits the deduction of state and local taxes to $10,000 for married couples filing jointly. This limitation is likely to be brought up as a part of tax legislation as some argue it disproportionately affects taxpayers in high-tax states.
- Taxation of tips and overtime income – It’s unclear how this proposal would specifically be enacted and whether this income would be exempt from employment taxes as well as income taxes. There would also likely be a significant impact on tax revenues and the overall deficit that would need to be offset.
- Tariffs – While tariffs are not an income tax policy matter, business owners should be aware of the proposed baseline tariffs on imports in the range of 10-20% and the proposed 60% tariff on imports from China.
- Estate tax – Without the extension of the TCJA, exemptions would revert to pre-2018 levels, adjusted for inflation (estimated at approximately $6.8-$7.5 million). The current gift limitation set to expire after December 31, 2025 is $13.99 million per individual.
- Corporate taxation – Permanently lowered to 21% through the TCJA, it’s been proposed to reduce this to 15% for companies that produce in the U.S.
- Other provisions that may be addressed include bonus depreciation, expensing of research and development costs (Section 174) and the child tax credit.
Legislation could be passed fairly quickly in 2025, so it’s important for businesses, individuals and estates to consider the changes on the horizon and to work with their tax advisors to plan accordingly.
Our Schneider Downs tax practice is ready to assist with strategic tax planning and cash flow analysis. Contact a member of the team to learn how we can help your organization.
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