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Navigating the 2025 Tax Landscape

November 8, 2024

Contributors: Anthony J. Licavoli Jr., CPA

Federal tax policy is likely to be influenced by Republican victories in the 2024 election. As of midday Nov. 8, President-elect Trump has secured a second term, the GOP holds a Senate majority and is trending toward a majority in the House of Representatives.

Should the Republicans gain full control of Congress, they are expected to push for the extension of key provisions from the 2017 Tax Cuts and Jobs Act (TCJA), which are set to expire at the end of 2025. To avoid a potential Senate filibuster, Republicans would likely consider employing the budget reconciliation process, mirroring their approach from 2017, to advance tax legislation.

Here’s a look at how the 2025 tax landscape might unfold based on the current election results:

Extension of the TCJA provisions

With over $4 trillion of tax increases scheduled to take effect in 2026, Republicans will be looking to extend many, if not all, of the 2017 TCJA provision including:

Individual Tax Rates and Brackets

The TCJA lowered individual tax rates to 10%, 12%, 22%, 24%, 32%, 35%, and 37%. Without Congressional action, the rates will revert to the pre-TCJA levels of 10%, 15%, 25%, 28%, 33%, 35%, and 39.6%. This reversion would result in higher taxes for most individuals.

Standard Deductions

The TCJA substantially raised the standard deduction amounts beginning in 2018. These amounts are set to return to their pre-TCJA levels in 2026.

Alternative Minimum Tax (AMT)

The TCJA introduced measures to reduce the AMT burden on taxpayers by increasing exemptions and phaseout thresholds. Without further action from Congress, the AMT will revert to pre-TCJA levels, subjecting more individuals to the tax.

Qualified Business Income Deduction for Passthrough Entities

The TCJA introduced a 20% deduction for Qualified Business Income (QBI) for many owners of sole proprietorships, partnerships, and S corporations. If Congress does not act to extend it, the deduction will expire for tax years beginning after Dec. 31, 2025.

Further Tax Law Changes

President-elect Trump introduced a range of federal tax proposals during his campaign that could alter the tax landscape for both businesses and individuals:

  • Lower the corporate income tax rate from 21% to 20% (15% for companies that manufacture products in the United States)
  • Restore 100% bonus deprecation
  • Immediate expensing of R&D costs
  • Expanding the child tax credit
  • Repeal Inflation Reductions Act (IRA) green energy tax credits

Tariffs

During his campaign, President-elect Trump proposed a series of new tariffs aimed at reshaping U.S. trade policy. Key among these is a 10-20% baseline tariff on U.S. imports. Additionally, a 60% tariff on Chinese goods would be imposed, which he argues will protect American jobs and industries from unfair competition. Additionally, Trump believes these measures will reduce the federal deficit and lower prices for American consumers by encouraging the purchase of domestically produced goods. However, critics warn that such tariffs could lead to higher consumer prices and potential retaliation from trading partners. They also argue the increased costs of imported goods could negatively impact American businesses and consumers, potentially leading to inflation and reduced economic growth. The debate continues as various stakeholders weigh the potential benefits against the risks of these proposed tariffs.

The 2025 tax policy landscape is poised for significant changes driven by the Republican victories in the 2024 elections. With President-elect Trump securing a second term and the likelihood the GOP holding majorities in both the Senate and the House, the extension of key provisions of the TCJA will be a primary focus. Additionally, President-elect Trump’s proposed tax reforms and tariffs could further reshape the economic landscape, sparking debates on their long-term impacts on businesses and consumers. As these discussions unfold, the direction of U.S. tax policy will be closely watched, with significant implications for the economy and taxpayers alike.

Having a steady presence in your corner is essential. At Rehmann, our tax team stands ready to provide guidance. To learn how we can help you find clarity and develop an effective tax planning approach for you and your business, contact a Rehmann advisor today.