What To Expect From The 2025 Tax Bill
April 15 has come and gone. Now we can finally go back to not thinking about taxes for another 9-12 months, right? Not so fast.
There is a bill moving through Congress right now that encompasses tax, border security, and defense priorities of the current administration. And GBQ’s tax team will be focused on the tax piece of this bill as it’s further developed and potentially signed into law later this year.
Why A Tax Bill Now?
Back in 2017, Congress passed the Tax Cuts and Jobs Act (TCJA). To comply with Senate budget reconciliation rules (the same rules that will govern the consideration and passage of the 2025 legislation), several provisions that were part of the TCJA included expiration dates. Most of which were designed to govern taxes on individuals. This included lower tax rates, an expanded standard deduction, a doubled child tax credit, and a deduction for 20% of business income passed through to its owners (Section 199A). Additionally, the estate tax exemption was doubled to $11.4 million for single filers and $22.8 million for married couples, and was adjusted annually for inflation.
All these provisions (and more) are set to expire on Dec. 31, 2025. The total cost of extending these provisions permanently is estimated to be approximately $4 trillion over the next 10 years.
There have been other automatic changes that have kicked in since 2017, as well – mostly on the business side.
Bonus depreciation is phasing out, from an initial 100% deduction for qualified property to a 40% deduction for tax year 2025. Under the current law, it will continue to decline by 20% each year until it reaches 0%. Another automatic provision that has been irritating to many business taxpayers is the requirement that research and experimentation (R&E) expenses be capitalized and amortized over five years, rather than deducted currently. This requirement went into effect in 2022. Despite bipartisan support in Congress to “fix” this issue, it remains in effect. Another significant provision to some taxpayers is the limitation on deducting interest expense to 30% of EBIT, rather than 30% of EBITDA.
Anticipating Further Changes
Anticipating that 2025 would feature significant tax legislation, President Trump made many statements during his presidential campaign that may, or may not, make it into final legislation, depending on the cost and other priorities of lawmakers and their constituents. These include the proposals for no taxes on tip income, overtime pay, and Social Security benefits. Trump also proposed a 15% corporate tax rate for domestic manufacturers. Lawmakers from both parties have advocated for expanding the deduction for state and local taxes that individuals may claim (currently capped at $10,000), as well as further expanding the child tax credit.
Will The New Bill Address All These Concerns?
We don’t know yet.
Currently, the House and the Senate have passed reconciliation bills that have set their targeted spending and tax cut levels. These reconciliation bills also set targets to cut existing spending. However, these are simply instructions for the various congressional committees (Ways and Means in the House; Finance in the Senate) to write legislation that meets the targets. Once that legislation is written, the public will get its first glimpse into lawmakers’ actual proposals.
This is when difficult choices will be made about what’s “in” and what’s “out.”
Less popular than the proposals to exempt income and expand deductions are the “pay-fors.” These may include clawing back certain energy tax credits put in place during the Biden Administration, expansion of the excise tax on corporate stock, or limiting the deductibility of state and local taxes by corporations. That limitation could significantly impact corporate tax expense, with estimates equating it to a 1-3% increase in the base corporate rate of 21%. Also on the chopping block could be the pass-through entity tax (PTET) arrangements that certain states have enacted in response to the individual $10,000 state and local deduction cap.
What Should Businesses Do With This Information?
The next several months will feature sometimes rapid legislative development. These developments may interact in unpredictable ways with the administration’s trade agenda, the volatility in bond markets, and the underlying economy.
As legislative drafts are released, stay engaged with your accounting and tax teams. These professionals can model how changes might affect you and your business. Furthermore, to the extent the effects are significant from a standpoint of jobs and/or investment, engage with your elected representatives to make your perspective known.
The legislative draft in 2017 saw significant changes between the initial proposal and the enacted law. The more information and insight lawmakers have on the real-world implications of the legislation, the better decisions they can make.
GBQ’s tax professionals are here to help. Contact us with questions about how legislation might impact individual taxes or what changes could mean for your business. We are closely monitoring the situation and will offer insight and modeling to our clients when available.
By Mark Silvaggio, JD, CPA, director, tax & business advisory services
Looking for additional insight? Check out these resources:
SBA Shifts Focus: Balancing Cuts With New Manufacturing & Loan Initiatives
Improving Financial Application Security: Key Trends And Recommendations
Is Your Business Benefiting From This State Tax Strategy
