President-Elect Donald Trump is set to return to the White House in 2025, ushering in a period that was already expected to see substantial federal tax activity. With Republicans projected to maintain control of both the U.S. Senate and House of Representatives, a unified GOP Congress is poised to help secure early legislative wins. Chief among these is likely the extension and expansion of Trump’s hallmark 2017 tax legislation, the Tax Cuts and Jobs Act (TCJA).
Although Trump provided limited details about tax policies during his campaign, he outlined several measures that could feature in a TCJA update or new legislation. Let’s explore what may be in store for businesses and individuals as we approach 2025.
The TCJA’s Sunset Provisions
The TCJA introduced sweeping changes to federal tax laws, including:
- A corporate income tax rate set at 21%,
- Reduced marginal tax rates for individuals,
- An increased standard deduction,
- A doubled Child Tax Credit for some families,
- A qualified business income deduction for pass-through entities, and
- A doubled federal gift and estate tax exemption.
While most corporate tax provisions are permanent, many provisions affecting individual taxpayers and the expanded gift and estate tax exemption are set to expire at the end of 2025. Trump has voiced support for extending these measures, which the Congressional Budget Office estimates would cost $4.6 trillion over a decade if made permanent.
Business Tax Proposals
During the campaign, Trump proposed several business-friendly tax changes. Notably, he suggested reducing the corporate tax rate to 15% for companies that manufacture goods within the United States.
Additionally, he has endorsed two potential bipartisan initiatives: allowing companies to immediately deduct research and experimentation costs instead of capitalizing and amortizing them, and reinstating 100% first-year bonus depreciation for qualifying capital investments. Under current TCJA rules, this bonus deduction stands at 60% for 2024 and is scheduled to drop to 40% in 2025, eventually reaching zero in 2027 without intervention.
Trump also proposed doubling the Section 179 expensing deduction cap for small businesses investing in qualifying equipment. The TCJA set a permanent cap at $1 million, adjusted annually for inflation ($1.22 million for 2024). The deduction phases out when purchases exceed $2.5 million ($3.05 million for 2024).
Individual Tax Proposals
One TCJA provision that Trump has reconsidered is the $10,000 cap on the state and local tax (SALT) deduction. This cap, which disproportionately affects taxpayers in states with high property taxes, is set to expire after 2025. Congress could either let the cap expire as planned or eliminate it earlier, depending on legislative priorities.
Other potential measures include eliminating taxes on tips for workers in the restaurant and hospitality industries, though the scope of this proposal—whether it applies to federal income taxes, payroll taxes, or both—remains unclear. Additional individual tax proposals from Trump include:
- Exempting overtime pay and Social Security benefits from taxation, though this could reduce funding for Social Security and Medicare,
- Introducing a deduction for interest on car loans for vehicles manufactured in the U.S.,
- Lowering taxes for Americans living abroad, and
- Exempting certain groups, such as police officers, firefighters, active-duty military personnel, and veterans, from federal taxes.
He also mentioned allowing hurricane victims to deduct the cost of home generators retroactively to September 1, 2024.
Revisiting the Inflation Reduction Act (IRA)
Republicans have targeted the Inflation Reduction Act (IRA) since its passage. Trump has pledged to eliminate unspent funds allocated for clean energy tax incentives under the IRA. However, some Republican lawmakers may resist a full repeal, as many clean energy manufacturing projects benefiting from these credits are underway in their districts. Instead, Trump might advocate for tightening eligibility criteria or scaling back the incentives rather than fully abolishing them.
Looking Ahead
While campaign promises often face hurdles in becoming law, 2025 is shaping up to be a pivotal year for tax legislation. Beyond the potential changes discussed here, debates over “tax extenders” for various temporary provisions affecting businesses and individuals are also expected. As developments unfold, we’ll continue to provide updates to help you understand how these changes might impact your tax planning.
