2025 has the potential to be one of the most significant years for tax policy in a generation. Donald Trump’s election, Republican control of the House and Senate, and the expiration of the Tax Cuts and Jobs Act (TCJA) will make 2025 a major year for changes to the federal tax code that will likely alter many businesses’ tax liability.
Enacted in 2017, the TCJA marked the most significant change to the U.S. federal tax code since the Tax Reform Act of 1986. The nearly $1.5 trillion legislation amended tax rates and policies for individuals and businesses alike, impacting every corner of the U.S. economy. The TCJA’s changes for individuals (which included cutting marginal tax rates, increasing the standard deduction, and capping the amount of state and local taxes families could deduct) were temporary and will expire on December 31, 2025, absent congressional action. Conversely, the TCJA’s changes for businesses (which included cutting the corporate tax rate and repealing the corporate alternative minimum tax) were made permanent with some exceptions. Observers from across the political spectrum, including the independent, nonpartisan Congressional Research Service, have noted that the law favored higher-income taxpayers because much of the benefit of cutting the corporate tax rate and the larger individual tax cuts went to higher-income individuals.
While businesses celebrated a permanent reduction to the corporate tax rate, several changes to the business-related provisions of the tax code upon the TCJA’s expiration will put businesses in a less-advantageous position absent congressional action:
- The TCJA permitted businesses to fully and immediately expense the cost of equipment in a provision known as “bonus depreciation,” which allowed businesses to write off the full cost of equipment as a tax deduction in the year it was purchased. Prior to the TCJA, businesses could only expense a portion of the cost of newly purchased equipment. Bonus depreciation began to phase down in 2023 and will completely revert to pre-TCJA treatment in 2027 without congressional action.
- The TCJA limited the amount of interest that certain businesses could deduct to 30% of the business’s earnings, down from 50% prior to the TCJA. Beginning in 2022, interest deductions were restricted to an even smaller earnings measure, further reducing the amount of interest that businesses may deduct when paying off debt. This smaller earnings measure will stay in effect absent congressional action.
- Finally, the TCJA required that businesses begin to amortize their research and experimental expenditures beginning in 2022, reducing their value over time. Likewise, this requirement will stay in effect absent congressional action.
Congress has already started to prepare and draft legislation to address the expiration of the TCJA through partisan tax teams in the House and Senate. The House of Representatives passed legislation to extend bonus depreciation to 2026, allow businesses to deduct interest equal to 30% of a business’s earnings using a broader earnings measure until 2026, and delay amortizing research and experimental expenditures until 2026. Still, Donald Trump’s election and Republican control of the House and Senate are the significant factors that will determine the final contours of business tax policy for the next decade.
While tax policy did not play a significant role in the 2024 election, Donald Trump advanced several high-level promises during his campaign that could be a starting point for anticipating his tax agenda as President. These promises include:
- In September, Trump announced he would further reduce the corporate tax rate from 21% to 15% for companies that make their products in the United States. It isn’t clear how those companies would be identified or defined, an important consideration for businesses looking to take advantage of this potential tax cut given the complex nature of globalized supply chains.
- Trump also promised to extend the TCJA, which, as described earlier, would allow businesses to immediately expense the cost of equipment, restore a higher limit on interest expense deductions, and allow for a full deduction for research expenditures.
Like the TCJA in 2017, Trump’s proposals for 2025 appear likely to again confer larger benefits on businesses and high-income earners rather than low- and middle-income Americans. With a Republican majority in Congress and Trump returning to the White House, there will be little standing in the way of sweeping tax cuts. Those cuts may not be shared equally, however. While not widely discussed on the presidential campaign trail, Republicans in Congress have advanced legislation that repeals many of the tax incentives for clean energy and clean transportation in the Inflation Reduction Act. Should similar legislation be enacted as part of Congress’ legislation to extend the TCJA, many businesses utilizing these incentives may actually see a tax increase. With trillions of dollars at stake and the potential for major changes to the tax code, businesses must be vigilant about how they might adjust their tax planning strategies to best serve their shareholders with a new administration and Congress.