As tax year 2024 draws to a close, taxpayers and tax professionals are tasked with the complex endeavor of planning for the 2025 tax year. This planning takes on new dimensions with the impending expiration of several key provisions from the Tax Cuts and Jobs Act of 2017 (TCJA) and the potential tax reforms announced during the 2024 election campaign. This article delves into the tax-related campaign promises of President-elect Donald Trump, the expiring TCJA provisions, and their implications on businesses as a Republican majority prepares to govern.

President-Elect Trump’s Tax Policy Proposals

With the Republicans securing both the Executive Branch and Congress, there is speculation regarding the tax and tariff reforms they will champion. Potential policies include:

· 60% or higher tariff on China produced goods and 25% related to Mexico and Canada.

· 10% tariff on other countries.

· Permanent Extension of TCJA Provisions: Efforts to make favorable provisions, such as the 199A QBI Deduction and enhanced child tax credits permanent.

· A 15% Flat Corporate Tax Rate: Targeting domestic manufacturers, potentially beneficial to this sector.

· State and Local Tax (SALT) Deduction Cap: Discussions around increasing or eliminating this cap on itemized deductions.

· Elimination of Taxes on Tipped Wages, Overtime, and Social Security Payments: Part of a broader approach to reduce tax burdens on individuals.

These proposals, if enacted, could transform the tax landscape, offering benefits to domestic manufacturers but also presenting challenges in balancing fiscal impacts.

The Expiring Provisions of the TCJA

The TCJA, a cornerstone of Donald Trump’s first term, introduced significant tax reforms, many of which are set to expire by the end of 2025.

· Section 199A Qualified Business Income (QBI) Deduction, which provides a 20% deduction for non-corporate business income. The expiration of this deduction could result in increased taxable income, subject to the highest individual tax rate of 39.6%, thus influencing entity structure decisions for businesses.

· Work Opportunity Tax Credit (WOTC): Unavailable for employees hired after December 31, 2025.

· Employer Credit for Paid Family and Medical Leave: Set to expire, potentially affecting workforce benefits and labor market dynamics.

· Higher individual tax rates.

· Increase in estate tax.

· Lower depreciation for the first year.

· Changes to a number of income tax credits.

These expiring provisions necessitate strategic planning to mitigate increased tax liabilities and adapt to the reduced availability of deductions and credits.

Other Expiring Provisions

Businesses face several expiring provisions affecting deductions and credits:

· Empowerment Zone Designations: Credits and tax-exempt bonds cease post-2025.

· Non-deductible Onsite Food and Beverage Costs: Loss of deductions for employer-provided conveniences after 2025.

· Partnerships must consider the expiration of the QBID and bonus depreciation regulations, while corporations need to navigate changes in compensatory deductions for key employees.

International Tax Changes

International operations will also experience shifts:

· GILTI and FDII Rate Increases: Affecting international taxable income calculations.

· BEAT Adjustments: Higher tax rates and altered definitions for applicable taxpayers.

These changes underscore the necessity for comprehensive planning and potential restructuring to optimize tax positions globally.

Decision-Making Under Republican Leadership

As taxpayers anticipate governance under President-elect Trump and a Republican Congress, strategic decision-making will be pivotal. Businesses and individuals must evaluate the potential permanency of favorable TCJA provisions, assess the implications of proposed tax reforms, and adapt to the shifting tax environment.

Strategic Planning Recommendations

· Address the impact of increased customs duty and tariffs.

· Model the Impact of Expiring Provisions: Understanding financial implications and exploring alternative strategies.

· Engage in Tax-Efficient Structuring: Evaluate entity structures and international operations.

· Monitor Legislative Developments: Stay informed on policy changes and prepare to engage with tax advisors proactively.

In conclusion, the tax landscape of 2025 and beyond is poised for significant transformations. By understanding the expiring provisions of the TCJA and the potential reforms on the horizon, taxpayers can strategically navigate these changes, ensuring compliance and optimizing tax outcomes in an era of evolving policies.

WebsterRogers stands ready to assist you in navigating and planning for these changes. For more insights and help in evaluating your situation and developing a plan to meet your specific needs, schedule a meeting with our Strategic Tax Advisory Review and Transformation (START) Team.

Strategic Tax Advisory Review and Transformation (START) Team

David Zaiken, Director of Tax Consulting, dzaiken@websterrogers.com

Kathleen Holston, Director, State & Local Tax Services, kholston@websterrogers.com

Kirby Millwood, Partner, Estate & Trust, kmillwood@websterrogers.com

Stephen Holliday, Tax Partner, sholliday@websterrogers.com

Adam Johnson, Tax Partner, ajohnson@websterrogers.com

Kevin Wise, Tax Director, kwise@websterrogers.com

Sarah Polson, Tax Director, spolson@websterrogers.com

Forrest Short, Tax Supervisor, fshort@websterrogers.com