Breaking the Code: Potential Tax Reform in 2025 and Beyond
By: Randy Howard, CPA
Last week’s inauguration of President Trump has stirred up a lot of speculation on the future of tax law. His current proposal has potentially the most significant tax changes since the original Tax Cuts and Jobs Act (TCJA). While no tax reform has yet been finalized, it is likely that something will occur with Republicans in charge of the House, Senate, and Presidency. We’ve compiled a summary of the major provisions from President Trump’s 2025 tax proposal.
Permanent TCJA Provisions
The TCJA was implemented in 2018 and was the largest tax overhaul since the 80’s. The majority of the individual TCJA changes are currently set to expire at the end of 2025. Some of the provisions of the TCJA include:
Lower tax rates and reconfigured brackets
Increased standard deduction
Elimination of personal exemptions
Increased child tax credit and addition of other dependent tax credit
Limitations on itemized deductions ($10,000 deduction cap on state & local taxes)
Larger AMT exemption and exemption phaseout thresholds
The 2025 tax update is proposing to make these current provisions permanent (with the exception of the cap on state and local taxes).
Permanent TCJA Estate Tax Exemption
Similar to the TCJA income tax provisions, the estate tax exemption would remain at $13.99 million instead of dropping to around $7 million. A high exemption allows greater flexibility in wealth transfer. Additionally, if the lifetime exemption does not revert, families will face lower estate taxes in the future.
Restoring TCJA Business Provisions
On top of restoring many of the individual provisions of the TCJA, President Trump also wants to restore many of the business provisions and make them permanent as well. The major hitters are the following:
Making 100% bonus depreciation permanent (currently 60% for 2024, 40% for 2025)
20% deduction for pass-through business income
Research & Development (R&D) expensing
Deduction for net interest limitation based on EBITD
For manufacturers, reinstituting the domestic production activities deduction (DPAD) at 28.5% to lower the effective corporate tax rate for domestic production to 15%
Increased limit on Section 179 expensing ($1.25M in 2025) allowing businesses to take higher immediate deductions for expenses related to depreciable assets
New Tax-Exempt Income
Currently, 100% of tips and overtime pay are taxed at ordinary income rates and social security benefits are taxed at a maximum of 85%. The 2025 proposal could eliminate taxes on tips, overtime pay, and social security benefits entirely.
Eliminating Clean Energy Tax Incentives
This would include the elimination of EV tax credits as well as other clean energy tax incentives such as solar panel installation. While dismantling these programs will involve legislative and practical challenges, the uncertainty surrounding future tax credits means that waiting to purchase could cost you valuable benefits.
We are unsure if these proposed changes will pass at all, or the timing of any potential changes. They may be retroactive to 2024 or implemented as of the date of the legislative action (potentially 2025). Please remember these are proposals and subject to change at any time. We will continue to provide you with updates on these proposals as they become available.
To ensure compliance with the requirements imposed on us by IRS Circular 230, we inform you that any tax advice contained in this communication (including any attachments) is not intended to and cannot be used for the purpose of: (i) avoiding tax-related penalties under the Internal Revenue Code, or (ii) promoting, marketing or recommending to another party any tax-related matter(s) addressed herein.