The U.S. Tax Code has been anything but stable over the last century. The most important federal tax rates, including those of personal income taxes, corporate taxes, and estate taxes, have floated around like space orbitals. That doesn’t even count other nuanced changes to tax provisions. Tax law adjustments make for interesting work as a financial advisor, let alone for CPAs and tax professionals, who are the true masters of tax planning.
2025 is likely to be another year when we’ll see some wobble within the federal tax provisions. Republicans’ election victories of the White House, Senate, and (by a slim margin) the House put them in the driver’s seat to determine the direction of tax reform next year. On the campaign trail, Trump promised $7.8 trillion of tax cuts and only $4.7 trillion of offsets, leaving a proposed deficit increase of $3 trillion. Reconciliation rules and greater concern about deficits and debt will limit how much of President-elect Trump’s tax agenda can be passed in 2025.
Nonetheless, Republican lawmakers are likely to do something while they can. They have their sights set on extending the Tax Cuts and Jobs Act’s (TCJA) temporary provisions, which are scheduled to expire on December 31, 2025. The likely outcome is either an extension or making permanent many of the TCJA’s provisions. Notably, this could include preventing the personal income tax rates from resetting higher. It also may include at least a temporary extension of the current relatively high estate and gift tax exemption amount.
On top of TCJA permanence, President-elect Trump proposed on the campaign trail lifting the cap on the state and local tax (SALT) deduction, exempting tips and overtime pay from income tax, exempting Americans abroad from income tax, allowing auto loan interest to be deductible, and lowering the corporate tax rate to 15 percent for domestic production. Trump also proposed a new tax credit for family caregivers without providing specifics, but the idea has bipartisan support in the House and Senate. Trump’s proposal to exempt Social Security benefits from income tax would likely not be permitted under reconciliation rules because it would affect Social Security funding.
Like everything in life and in government, there’s no clear answer for what should be done or what government will do. The Tax Foundation wrote in a November 13 article, “Fiscal pressures are likely to weigh heavily on lawmakers as they craft a tax reform package. That increased pressure could result in well-designed tax reform that prioritizes economic growth, simplicity, and stability, or it could encourage budget gimmicks and economically harmful offsets. Lawmakers should avoid the latter.”
We will wait and see where the spaceship flies, so to speak! Our team will stay informed about any changes that might affect your financial planning and investing. In the meantime, we encourage you to connect with your tax adviser if you have specific questions about your tax situation throughout 2025.