With Republicans winning control of the White House and Congress, we now have a clearer picture of the tax policies that will be pursued in 2025 and beyond. Priorities under consideration include the expiration of the 2017 Tax Cuts and Jobs Act (TCJA) provisions, proposals made by President Trump during the campaign, and bipartisan legislation that passed in the House earlier in 2024 but did not pass in the Senate. Although achieving these aims will likely be easier under a Republican trifecta, there remains uncertainty about how such legislation will be enacted, given the party’s slim majorities, constraints of using budget reconciliation, choice of funding mechanisms and concerns regarding the impact of tax cuts on the national debt.

Without congressional action, many of the TCJA provisions will expire at the end of 2025. Republicans have expressed interest in extending or making many of these provisions permanent. While banks organized as C corporations benefited from having the tax rate permanently lowered to 21%, a majority of the expiring TCJA provisions would impact individuals and shareholders of banks organized as S corporations.

For example, without action by Congress, individual tax rates would increase to pre-TCJA levels with a top rate of 39.6%. The individual Alternative Minimum Tax (AMT) exemption and threshold would be greatly reduced, with the Congressional Budget Office (CBO) estimating 7.22 million taxpayers being subject to AMT from a current level of around 200,000. The standard deduction and child tax credit would be reduced, but the personal exemption would return.

The 199A Qualified Business Income deduction, which provides up to a 20% deduction for qualified income, is also set to sunset after 2025, significantly impacting shareholders of banks organized as S corporations. The estate and gift tax exemption threshold would be approximately halved from the current level of $13.6 million per individual. The sunsetting of the SALT cap, which limits an individual’s itemized state and local tax deductions to $10,000, would provide relief to some individual taxpayers. However, this benefit is likely to be reduced without simultaneous increases to the AMT threshold and because the Pease limitation is currently set to be reinstated in 2026. 

The original passage of the TCJA included several revenue raisers that Congress has subsequently sought to modify. These proposals include a more favorable calculation to the Section 163(j) business interest expense limitation, allowing full expensing again of domestic §174 research and development and restoring 100% bonus depreciation. These changes were packaged into the 2024 Tax Relief for American Families and Workers Act, which passed in the House with bipartisan support but failed to advance in the Senate. Given the support many of these items garnered, they will likely be considered in future legislation.

While much of the energy in Washington is expected to be directed at the expiring TCJA provisions, a variety of other proposals were made by President Trump during the campaign. For individuals, this includes the elimination of taxes on Social Security benefits, tip income and overtime wages, as well as a deduction for interest on car loans. Business tax proposals included a further reduction in the corporate tax rate to 15% for corporations with domestic production activities.

A large part of the tax legislation is expected to be enacted using the budget reconciliation process. Under reconciliation, legislation can be passed with a simple majority in the Senate, but the process comes with restrictions. Deficit creation is allowed during the initial 10-year window but must be neutral afterward, which may reduce the ability to make some of the proposed legislation permanent without the inclusion of offsetting revenue-raising measures.

The CBO estimates that extending the TCJA provisions alone will increase the federal deficit by $4.6 trillion over the next 10 years. With Republicans holding slim majorities in the House and Senate, there may be challenges in reaching a consensus among members on the extent to which the deficit should be increased. To lessen the deficit impact, Republicans have suggested increasing tariffs and rolling back Inflation Reduction Act (IRA) credits. These will likely face some resistance in Congress as many members will be unwilling to substantially increase tariffs and many of the projects supported by the IRA are located within Republican districts.

This year is poised for significant tax legislation, with Republicans aiming to extend key TCJA provisions and introduce new tax cuts. The overall tax environment is expected to favor continued low taxes. As new tax bills are crafted and introduced, 2025 will be a time of heightened tax planning as taxpayers navigate these changes.