President-Elect Donald Trump will return to the White House in 2025 — a year that already was expected to see significant activity on the federal tax front. A projected unified GOP Congress is poised to help him notch early legislative tax victories. (Republicans have won back a majority in the U.S. Senate and are projected to retain a majority in the U.S. House of Representatives.) The most obvious legislative win will likely be the extension and expansion of Trump's signature 2017 tax legislation, the Tax Cuts and Jobs Act (TCJA).
While Trump didn't issue detailed tax policies during the campaign, he briefly proposed several measures on the trail that could be included in a TCJA update or other law. Let's take a closer look at what might be on the table for business and individual taxpayers in 2025 and beyond.
The TCJA brought wide-ranging changes to the federal tax landscape, including:
• A 21% corporate income tax rate,
• Lower marginal tax rates for individuals,
• A higher standard deduction,
• The doubling of the Child Tax Credit for some parents,
• The creation of a qualified business income deduction for pass-through entities, and
• The doubling of the federal gift and estate tax exemption.
Although most corporate provisions are permanent, many TCJA provisions regarding individual taxes and the doubled gift and estate tax exemption are scheduled to expire at the end of 2025. Trump has endorsed extending those tax breaks. The nonpartisan Congressional Budget Office has estimated that the 10-year cost of permanently extending the expiring provisions will be $4.6 trillion.
Additional proposals affecting business taxes
During the campaign, Trump proposed several tax changes that businesses would welcome. For example, he would further reduce the corporate tax rate to 15% for companies that make their products in the United States.
He has also called for two changes that may have bipartisan support. First, Trump would allow companies to immediately expense their research and experimentation costs rather than capitalize and amortize them. Second, he would return to 100% first-year bonus depreciation for qualifying capital investments. Under the TCJA, the allowable first-year bonus deduction is 60% for 2024; in 2025, it's slated to be 40%. Without congressional action, it will drop to zero in 2027.
In addition, Trump has spoken of doubling the ceiling on the Sec. 179 expensing deduction for small businesses' qualifying investments in equipment. The TCJA permanently capped the deduction at $1 million, adjusted annually for inflation ($1.22 million for 2024). The deduction is subject to a phaseout when the cost of qualifying purchases exceeds $2.5 million ($3.05 million for 2024, adjusted for inflation).
Additional proposals affecting individual taxes
One TCJA provision that Trump has expressed second thoughts about is the $10,000 cap on the state and local tax deduction. The cap, which hits taxpayers hardest in states with high property taxes, will expire after 2025. Depending on how quickly lawmakers can move tax legislation, Congress could let it expire or even terminate it early.
A TCJA expansion or additional legislation could incorporate Trump's promises to eliminate taxes on tips for restaurant and hospitality workers. (It's unclear if he was referring only to federal income taxes or also payroll taxes.) Without limitations, such a provision could benefit individuals who restructure their compensation to reduce their tax bills by, for example, classifying bonuses as tips.
Trump has also proposed excluding overtime pay and Social Security payments from taxation. It's worth noting that a Trump administration may reduce the number of employees eligible for overtime. And exempting Social Security benefits would shrink the funding for that program and Medicare. In addition, the president-elect has proposed a new deduction for interest on car loans for vehicles manufactured in the United States and a reduction in taxes for Americans living abroad.
Trump also said he'd consider exempting police officers, firefighters, active-duty military members, and veterans from paying federal taxes. In a social media post, he wrote that if he won, hurricane victims could deduct the cost of a home generator retroactive to September 1, 2024.
The threat of tariffs
Trump has repeatedly pledged to impose a 10% baseline tariff on imported goods, with a 60% tariff on imports from China and possibly a higher tariff on imports from Mexico. As a result, taxpayers will likely face higher prices.
Although Trump routinely claims that the exporting countries will bear the cost of the tariffs, history suggests otherwise. The more common scenario is that U.S. companies that buy imported goods pass the tariffs along to their customers, opening the door for competitors that don't purchase imports to raise their prices similarly. Some major U.S. companies and the National Retail Federation have already warned that if Trump's tariff proposals come to fruition, higher prices on many products may follow.
Rollback of the IRA
The GOP has had the Inflation Reduction Act (IRA) in its crosshairs since it was first passed with zero Republican votes. Trump has vowed to cut unspent funds allocated for the IRA's tax incentives for clean energy projects. He also may want to eliminate the business and individual tax credits going forward.
However, a significant number of clean energy manufacturing projects that rely on the credits are planned or underway in Republican districts and states, which could give the GOP pause. This past August, a group of Republican legislators signed a letter to Speaker of the House Mike Johnson opposing a full repeal of the IRA. Trump could instead advocate for keeping some of the tax credits or restricting them, for example, through tighter eligibility requirements.
Stay tuned
While it's always dicey to assume that candidates can deliver on big campaign promises, one thing is certain — 2025 will be a critical year for tax legislation. In addition to the issues discussed above, so-called "tax extenders" for various temporary business and individual tax provisions will be debated. We'll keep you apprised of the developments that could affect your tax liability.