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01/27/2025
Tax outlook: Legislative considerations
Explore potential tax policy changes discussed by the Trump administration, and what they could mean for businesses and individuals if enacted.
As with every change in the executive branch of the federal government, taxpayers can expect, and should be prepared for, changes to various areas of the tax code. While it is still uncertain which will come to fruition, President Trump’s campaign offered a window into the likely policies of a second Trump term. This, combined with knowledge of his priorities during his first administration, provides us with a good idea of what his agenda may hold.
In this article, we have summarized a few of the more significant potential tax policy changes that have been discussed publicly by the Trump administration. In addition, we have provided what those specific changes could mean for businesses and individuals if enacted into law by the 119th Congress, and what actions or questions they should consider now.
The timing of these items being introduced in Congress remains uncertain. With the Republican party regaining control of the Senate, retaining control of the House, and winning the White House, one would expect that any major tax legislation would be moved through during the first part of 2025. Previously, Republican legislators expressed a desire to address extensions of certain Tax Cuts and Jobs Act (TCJA) provisions within the first 100 days of Trump’s presidency. Recent developments, however, now point to Republican leadership choosing to pass a reconciliation bill first, within the first 30 days of the administration taking office, which would be focused on border security, energy policy, and national defense. Senate majority leader John Thune (R-SD) has indicated he prefers to take a slower approach to taxes, potentially addressing those provisions in a bill to come later in 2025.
As many taxpayers know, any federal legislation is just the start of implementing any new tax policy. Once federal legislation is passed, each individual state must then either follow or decouple from those provisions. If history is any indication, any tax legislation that makes it into law in 2025 will take months, if not years, to be fully implemented at the federal and state levels. Make sure you’re subscribed to receive our Tax team’s updates.
Potential tax changes
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Current law: Not deductible.
Potential change: Itemized deduction for auto loan interest paid on vehicles built within the United States.
Takeaway: If this change is implemented, certain qualifying taxpayers could have an increase in their itemized deductions that would reduce overall tax liability in 2025 and possibly future tax years.
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Current law: Bonus depreciation on eligible business assets is slated to decrease to:
• 40% for 2025
• 20% for 2026
• 0% for 2027 and beyond
Potential change: Reinstatement of 100% bonus depreciation. This proposal appears to have bipartisan support in Congress.
Takeaway: With 100% bonus depreciation possibly being restored, consider delaying significant fixed asset purchases until 2025. In addition, if the placed-in-service date of a project is going to be toward the end of 2024, consider delaying finalizing the project in order to be placed in service in 2025.
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Current law: Business interest expense is limited to 30% of adjusted taxable income (ATI), without regard to depreciation, amortization, and depletion.
Potential change: Repeal of the provision requiring taxpayers to calculate ATI without regard to depreciation, amortization, and depletion, providing for a higher business interest expense limitation.
Takeaway: With the possibility of the calculation of ATI going back to pre-2022 rules, make sure that any interest limitation calculation is updated for any year-end projections/provisions estimates. Review debt agreements and consider refinancing.
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Current law: $2,000 credit per child under the age of 17. The refundable portion is worth up to $1,700.
Potential change: No official policy proposal; however, Vice President J.D. Vance has called for increasing the child tax credit to $5,000 per child.
Takeaway: If this change is implemented, certain qualifying taxpayers could expect an increased child tax credit in 2025 and possibly future tax years.
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Current law: Corporate tax rates are currently 21%.
Potential change: Reduction of the corporate tax rate to 20%, or to 15% for corporations whose production activities are solely within the United States. The mechanism to get to the 15% corporate rate is expected to be akin to the former Domestic Production Activities Deduction (DPAD), which provided for a 9% deduction applied to the lesser of income derived from domestic production activities or taxable income.
Takeaway: Evaluate entity choice depending on the outcome of the corporate rate being reduced and possible extension of Section 199A (qualified business income deduction).
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Current law: Current estate and gift tax exemption is $13.61 million and is scheduled to revert to the pre-TCJA amount of $5 million and be indexed for inflation beginning Jan. 1, 2026.
Potential change: Current proposals call for the TCJA exemption of $13.61 million to be made permanent.
Takeaway: Consider utilizing the higher estate tax exemptions before they (potentially) revert to pre-TCJA levels. This could include tax-efficient transfers of wealth through making large gifts or setting up trusts.
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Current law: Currently taxed at the individual’s marginal tax rate.
Potential change: Elimination or reduction of tax on income received from tips to the recipient.
Takeaway: If this change is implemented, taxpayers could expect a reduced tax liability in 2025 and possibly future tax years.
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Current law: Marginal tax rates range from 10% to 37%.
Potential change: Current proposals call for making permanent the marginal tax rates under the Tax Cuts and Jobs Act (TCJA).
Takeaway: Consider tax accounting method planning that changes the timing of income and deductions.
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Current law: Currently taxed at the individual’s marginal tax rate.
Potential change: Elimination or reduction of tax on overtime pay of the recipient.
Takeaway: If this change is implemented, taxpayers could expect a reduced tax liability in 2025 and possibly future tax years.
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Current law: Deduction of 20% of qualified business income from pass-through entities, subject to certain limitations. Set to expire at the end of 2025.
Potential change: Current proposals call for it to be made permanent.
Takeaway: Evaluate entity choice (S-Corp/Partnership to C-Corporation) if Section 199A is allowed to expire at the end of 2025 and not extended or made permanent.
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Current law: Subject to $1 million limit for qualifying property, with a phase-out beginning when the cost of eligible property exceeds $2.5 million.
Potential change: The limit for qualifying property would increase to $2 million (versus existing law of $1 million). No proposals (as of the date of this writing) are related to an increased phase-out amount.
Takeaway: Consider these potential new thresholds – along with the potential changes to bonus depreciation – when analyzing fixed asset purchases and placed-in-service dates for projects. Individual tax return factors should also be considered when evaluating Section 179 considerations.
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Current law: Up to 50% is taxable if combined income meets certain thresholds, and up to 85% if the amount received exceeds the maximum threshold.
Potential change: Income tax eliminated on Social Security benefits.
Takeaway: If this change is implemented, taxpayers could expect a reduced tax liability in 2025 and possibly future tax years.
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Current law: Specified Research or Experimental expenditures (SREs) are required to be capitalized and amortized over either 5 or 15 years, depending on whether the expenditures are related to domestic or foreign activities, respectively.
Potential change: Repeal of the requirement to capitalize and amortize domestic SREs. No specific policy proposal has been made, but President Trump has advocated for “expanded research and development credits.”
Takeaway: Consider the footprint of the business’s research and development (R&D) work. With the ability to deduct domestic Section 174 costs possibly available for 2025, consider conducting research domestically rather than abroad, if possible.
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Current law: Limit of $10,000 deduction for state and local taxes on individual income tax returns.
Potential change: Reinstatement of unlimited deduction for state and local taxes paid or discontinuing the cap as part of extending the TCJA.
Takeaway: Consider waiting to pay any state and local tax until 2025 versus 2024.
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Current law: Various.
Potential change: Impose universal baseline tariff on all imports of 10%-20% and 60% on all goods imported from China.
Takeaway: This information is FYI, no action needed.
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Any advice contained in this communication, including attachments and enclosures, is not intended as a thorough, in-depth analysis of specific issues. Nor is it sufficient to avoid tax-related penalties. This has been prepared for information purposes and general guidance only and does not constitute legal or professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice specific to, among other things, your individual facts, circumstances and jurisdiction. No representation or warranty (express or implied) is made as to the accuracy or completeness of the information contained in this publication, and CohnReznick LLP, its partners, employees and agents accept no liability, and disclaim all responsibility, for the consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.