February 2025 - Monthly Newsletter

With Donald Trump now in office and the Republicans controlling Congress, we could see some major tax legislation in the near future.

Republican Congressional leaders are focused on extending the provisions of the 2017 Tax Cuts and Jobs Act (“TCJA”) that are set to expire at the end of 2025, including individual income tax rate cuts and the enhanced child tax credit, and implementing President Trump’s tax campaign promises.

The House Ways and Means Committee recently kicked things off with a hearing on “The Need to Make Permanent the Trump Tax Cuts for Working Families.” A 50-page menu of proposals was circulated recently as well. These proposals include reductions in income tax rates, expansions of tax credits and tariff proposals.

The following are some of the provisions being considered:

1. Extending (perhaps permanently) provisions in the 2017 Trump Reform (TCJA) set to expire or be modified at the end of 2025:

• Individual Provisions

Tax Rates – The TCJA lowered individual tax rates; however, at the end of 2025, without an extension of the TCJA, the individual tax rates will revert to their pre-TCJA levels. This means individual tax rates will be 10%, 15%, 25%, 28%, 33%, 35%, and 39.6%.

Standard Deduction – Under the TCJA, basic standard deduction amounts in 2018 were nearly doubled to $12,000 for single filers, $18,000 for head of household filers, and $24,000 for married joint filers, adjusted each year for inflation. Without an extension, the basic standard deduction would be roughly half of what it is now, adjusted for inflation.

Child Tax Credit – Under the TCJA, the child tax credit was increased from $1,000 to $2,000 per qualifying child, with a phaseout threshold of $200,000 for unmarried taxpayers and $400,000 for married joint filers. Without an extension, the credit will revert back to its pre-TCJA structure of $1,000 per qualifying child, with lower phaseouts.

Estate and Gift Tax – The TCJA basically doubled the estate and gift tax basic exclusion amount. Without an extension, the estate and gift tax exclusion amount will be roughly cut in half (reduced from $10 million per decedent to $5 million per decedent and then adjusted annually for inflation).

• Business Provisions

Qualified Business Income (QBI) – Under the TCJA, owners of pass-through entities like LLCs, partnerships, sole proprietorships, and S corporations, are able to claim a deduction of up to 20% of QBI. Unless extended, this deduction will be eliminated.

Bonus Depreciation – Increased expensing is generally available under section 168(k) for investments in certain new or used depreciable property and the planting or grafting of specified plants. The bonus depreciation percentage is 100% for property acquired and placed in service (or specified plants planted or grafted) after September 27, 2017, and before 2023, 80% for 2023, 60% for 2024, 40% for 2025, and 20% for 2026. Without action, bonus depreciation expires for property acquired and placed in service (or specified plants planted or grafted) after December 31, 2026.

Qualified Opportunity Zones – Qualified opportunity zone incentives are federal tax incentives designed to spur investment in economically distressed communities. Investors can defer tax on any prior gains invested in a qualified opportunity fund (QOF) until the earlier of the date on which the investment in a QOF is sold or exchanged, or December 31, 2026. If the QOF investment is held for longer than five years, there is a 10% exclusion of the deferred gain, and if held for more than seven years, the exclusion is 15%. Without action, no further gain deferral is available after December 31, 2026, and there is no exclusion available for five or seven-year investments in qualified opportunity zones that have not reached that mark by December 31, 2026.

• International Provisions

GILTI – Under the TCJA, domestic corporations are allowed a 50% deduction for GILTI amounts (resulting in a tax rate of 10.5%). Without an extension, the GILTI rate goes up from 10.5% to 12.5% (the deduction amount for GILTI will be reduced from 50% of the corporate rate to 37.5%).

FDII – Under the TCJA, domestic corporations are allowed a 37.5% deduction for income deemed derived from foreign intangibles (FDII) (resulting in a tax rate 13.125%). Without an extension, the FDII rate will increase from 13.12% to 16.4% (the deduction amount for FDII goes down from 37.5% of the corporate rate to 21.87%).

2. In addition to extending the TCJA provisions, the following new provisions are being considered:

• Exempt Americans abroad from income tax - It is unclear whether this proposal intends to raise the foreign earned income exclusion limit or fully eliminate U.S. taxation on individual foreign income.
• A reduction in the corporate tax rate to either 20% or 15%
• Repealing the corporate alternative minimum tax
• Elimination of taxes on tips and overtime
• Elimination of estate taxes altogether
• Ending taxes on social security benefits
• Ending the carried interest loophole
• IRS enforcement funding cuts of $20 billion