2025 is poised to be pivotal for tax legislation. With a unified government, where one party controls the White House and both chambers of Congress, major tax changes are more likely to be enacted. This was the case with the Tax Cuts and Jobs Act (TCJA) passed during Donald Trump’s first term. However, even with party alignment, narrow majorities in Congress could complicate the passage of sweeping reforms.
Focus Areas for 2025 Tax Legislation
The 2025 tax agenda is expected to center on extending key provisions of the TCJA set to expire. It will also focus on advancing tax cuts from Trump’s campaign. However, budget reconciliation will require consensus within the party, particularly given concerns over rising federal deficits.
Expiring TCJA Provisions
Key aspects of the TCJA slated for extension or modification include:
- Maintaining current tax brackets with a top rate of 37%.
- Keeping the elevated standard deduction, used by most taxpayers.
- Preserving the elimination of personal exemptions and miscellaneous itemized deductions in excess of 2%.
- Extending the $750,000 mortgage interest deduction cap and $2,000 Child Tax Credit.
- Continuing limits on charitable contributions and the estate tax exclusion, which is set at nearly $14 million for 2025.
- Possible adjustments to the $10,000 state and local tax deduction limit, potentially doubling it for married couples.
Several business-related provisions are already being phased out and/or set to expire next year:
- Full deductions for research expenses
- 100% bonus depreciation. It was lowered to 60% in 2024 and will drop to 40% in 2025.
- The business interest deduction limitation to not include adjustments for depreciation, depletion, and amortization.
- The 20% qualified business income deduction is set to expire after 2025.
- Empowerment Zones and the New Markets Tax Credit will expire at the end of 2025. Opportunity Zones expire at the end of 2026.
Trump’s Campaign Proposals
President-Elect Trump has proposed numerous tax changes. While we don’t have much information on how they’ll be implemented, here’s a few PriceKubecka will be keeping an eye on:
Exempting Tip Income from Taxation: This proposal aims to relieve tipped workers from paying taxes on their tips, potentially boosting take-home pay. It introduces a novel approach in the tax system, focusing on a segment of workers with unique income structures.
Exempting Overtime Pay from Taxation: By eliminating taxes on overtime earnings, this measure seeks to reward workers for additional hours worked. It could create incentives for employees to pursue more overtime opportunities.
Eliminating Taxes on Social Security Benefits: This proposal would simplify tax obligations for Social Security recipients by exempting their benefits from federal income taxes.
Deduction of Car Loan Interest: Modeled after the existing mortgage interest deduction, this initiative would enable taxpayers to deduct interest paid on car loans, making vehicle financing more affordable.
Phasing Out Clean Energy Tax Credits: The proposal focuses on ending specific tax incentives, such as those for electric vehicles, with the intention of reallocating resources toward other priorities.
Reducing Corporate Income Taxes: Lowering the corporate tax rate, potentially to 15% for domestic manufacturers, aims to stimulate business investment and competitiveness in the global market.
Establishing a Sovereign Wealth Fund: Inspired by models in other countries, this fund would support government investment activities, with suggested funding sources including tariffs on imports.
Implementing Tariffs: A range of tariffs on imports, including those from specific countries, is proposed as a strategy to generate revenue and encourage domestic production.
Challenges and Outlook
The path to significant tax reform in 2025 will be complex. Balancing tax cuts with budget constraints and reconciling competing interests within the parties will likely require compromises. Nonetheless, if recent history is any indication, substantial tax legislation could emerge from these negotiations.
Partnering with PriceKubecka in the Next Administration
Navigating the complexities of next year’s tax changes will be challenging, but PriceKubecka is here to ensure your business is a step ahead. As experts in accounting and tax strategy, we are committed to helping our clients maximize opportunities and avoid unnecessary tax liabilities. We’ll be monitoring developments to keep you informed and prepared. Our proactive approach ensures you don’t pay more to the IRS than necessary, allowing you to focus on growing your business with confidence. CONTACT US today to start saving taxes on day one of the new year!