Connect with us

Accounting

Tax Strategy: Trump tax proposals and 2025 tax legislation

Published

on

2025 promises to be a very big year for tax legislation.

Having the White House, House and Senate all in control of the same party increases the likelihood that major tax legislation can be agreed upon. The Tax Cuts and Jobs Act was enacted in the first year of Donald Trump’s first term when Republicans also had control of the White House and Congress. Republicans are also likely to use budget reconciliation to enable the legislation to be enacted without any Democratic support by avoiding the filibuster rules of the Senate.

Republicans will still have to keep almost all their members on board given their narrow majorities in both the House and Senate. Budget reconciliation will also require Republicans to agree on a budget resolution that will specify the spending, taxes, and deficit to be allowed under the budget resolution, and then require the congressional committees to follow that resolution in crafting the legislation.

The two main focuses of the 2025 tax legislation are likely to be extension of and other tinkering with the provisions of the TCJA, many of which are currently set to expire after 2025, and enactment of the many tax-related proposals Trump has made on the campaign trail. The legislation will still be difficult to pull together, with many of the tax proposals coming at a high cost, and growing concern about increasing the size of the federal deficit.

Expiring TCJA provisions

President-elect Trump has proposed extending almost all the expiring provisions of the TCJA. These include:

  1. Maintaining the current tax rate brackets with a top rate of 37%;
  2. Maintaining the TCJA’s elevated standard deduction, which has resulted in around 80% of taxpayers claiming the standard deduction rather than itemizing;
  3. Continuing the elimination of the personal exemption;
  4. Continuing the elimination of miscellaneous itemized deductions in excess of the 2% floor, including unreimbursed employee business expenses, investment expenses, tax preparation fees, and safe deposit box rental expenses;
  5. Continuing the elimination of the Pease limit on overall itemized deductions;
  6. Continuing the 60% of adjusted gross income limit on charitable contribution deductions;
  7. Continuing the current $750,000 limit on the mortgage interest deduction;
  8. Continuing the current $2,000 Child Tax Credit with a $1,400 refundable amount;
  9. Continuing the current, more limited, individual alternative minimum tax; and,
  10. Continuing the current high level of the unified estate and gift tax exclusion amount, which is $13,990,000 for 2025.

The TCJA also included the $10,000 limit on the state and local tax deduction. Trump has mentioned perhaps letting that limit expire. Other proposals include at least doubling it for married filing jointly to $10,000 for each spouse or otherwise increasing the limit.

Several business provisions are also already phasing down. Republicans included retroactively extending these provisions in the Tax Relief for American Families and Workers bill in 2024. However, that bill failed to pass the Senate. These include:

  1. Restoration of 100% deduction for research and experimentation expenses;
  2. Restoration of 100% bonus depreciation, currently phasing down to 60% in 2024 and 40% in 2025; and,
  3. Restoration of the business interest deduction limitation to not include adjustments for depreciation, depletion and amortization.

A few business-related provisions of the TCJA are also scheduled to expire after 2025. These include:

  1. The 20% qualified business income deduction;
  2. The disallowance of the moving expense deduction, other than for members of the armed forces; and,
  3. Empowerment Zones and the New Markets Tax Credit, expiring at the end of 2025, and Opportunity Zones, expiring at the end of 2026.

Several of the international tax provisions of the TCJA are modified after 2025:

  1. BEAT increases to 12.5% from 10%;
  2. GILTI deduction drops from 50% to 37.5%;
  3. FDII drops from 37.5% to 21.875%; and,
  4. The look-through rule for controlled foreign corporations from other related CFCs expires.
trump-no-tax-on-tips-sign.jpg
Donald Trump during a campaign event in Las Vegas

Ian Maule/Getty Images

Trump’s campaign proposals

President-elect Trump made a number of tax proposals at campaign stops during the election campaign. Most of them lack detail as to how they would be implemented.

  • No taxation of tip income. This would be a new concept in the tax law. It would favor workers receiving tip income over other low-wage workers who do not receive tip income and might encourage employers to try to push more employees into tip income. It is not clear if it would include tips in kind or only cash tips. Taxation of tip income was already difficult to administer, and it is not clear if this would simplify administration or further complicate the issue. The proposal would be expensive.
  • No taxation of overtime. This would also be a new concept in the tax law. It also raises definitional questions of what constitutes overtime — e.g., does it include an employee who works more than 40 hours per week because the employee holds two jobs? It might encourage employees to try to maximize overtime pay versus regular pay. The proposal would also be expensive.
  • No taxation of Social Security benefits. This would be relatively easy to incorporate into the tax law since Social Security benefits are already not taxed to recipients under certain income levels. The proposal would be expensive and contribute to a more rapid depletion of the Social Security Trust Fund.
  • Deduction of car loan interest. This would be relatively easy to incorporate into the tax law since there is already a deduction for home mortgage interest. This proposal would also be expensive to adopt. It might help more taxpayers qualify for itemized deductions in excess of the standard deduction.
  • Elimination of double taxation of citizens living abroad. There are already several tax provisions designed to limit double taxation of citizens living abroad. These include tax treaties, the foreign tax credit, the foreign earned income exclusion, and the foreign housing deduction and exclusion. It is not clear if this proposal would try to modify these provisions or seek to revise the fundamental U.S. tax policy of taxing U.S. citizens on their worldwide income regardless of where they reside.
  • Elimination of clean energy credits. Trump has specifically proposed eliminating the clean energy credits with respect to electric vehicles. It is not clear how far this extends to other clean energy credits. Many Republican lawmakers have voiced support for some of the clean energy credits. This proposal would help to raise some revenue to offset the expense of some of the other proposals.
  • Corporate income tax. Although the corporate income tax rate established by the TCJA is permanent at 21% and not set to expire, Trump has proposed lowering it further to 18% or 20% and 15% for domestic manufacturers. This would also be an expensive provision that might be dropped due to deficit concerns.
  • Sovereign wealth fund. Trump has proposed establishing a sovereign wealth fund for investment activities by the government, similar to funds operated by several other countries. Trump has proposed funding it with tariffs and has predicted that it would be a revenue raiser for the country.
  • Tariffs. Trump has proposed a variety of tariffs as a favorite revenue raiser. These include a broadly applicable 10% or 20% tariff on imports, a 60% tariff of imports from China, and a 100% tariff on vehicles from Mexico. He has also recently proposed 25% tariffs on Canada and Mexico and an additional 10% tariff on China related to control of drugs coming into the U.S. Trump would have some freedom under current law to impose tariffs by executive action, although Congress could act to restrict that authority. Trump has suggested that tariffs could pay for many of his other tax proposals, although some commentators doubt that tariffs could raise that level of income. Trump has also suggested that tariffs could at some point replace the U.S. income tax, although again many commentators doubt that it could raise sufficient revenue. Tariffs would also tend to be much more regressive than the current income tax.

Summary

These are likely to be the discussion points around which 2025 tax legislation develops. As was done with the TCJA, there may be a tendency to try to get in as many tax breaks as possible, but to try to control the revenue cost by including phasedowns and phaseouts to stay within budget reconciliation requirements. The negotiations are likely to be difficult but also likely to end up with significant tax legislation enacted in 2025.

Continue Reading

Accounting

IAASB tweaks standards on working with outside experts

Published

on

The International Auditing and Assurance Standards Board is proposing to tailor some of its standards to align with recent additions to the International Ethics Standards Board for Accountants’ International Code of Ethics for Professional Accountants when it comes to using the work of an external expert.

The proposed narrow-scope amendments involve minor changes to several IAASB standards:

  • ISA 620, Using the Work of an Auditor’s Expert;
  • ISRE 2400 (Revised), Engagements to Review Historical Financial Statements;
  • ISAE 3000 (Revised), Assurance Engagements Other than Audits or Reviews of Historical Financial Information;
  • ISRS 4400 (Revised), Agreed-upon Procedures Engagements.

The IAASB is asking for comments via a digital response template that can be found on the IAASB website by July 24, 2025.

In December 2023, the IESBA approved an exposure draft for proposed revisions to the IESBA’s Code of Ethics related to using the work of an external expert. The proposals included three new sections to the Code of Ethics, including provisions for professional accountants in public practice; professional accountants in business and sustainability assurance practitioners. The IESBA approved the provisions on using the work of an external expert at its December 2024 meeting, establishing an ethical framework to guide accountants and sustainability assurance practitioners in evaluating whether an external expert has the necessary competence, capabilities and objectivity to use their work, as well as provisions on applying the Ethics Code’s conceptual framework when using the work of an outside expert.  

Continue Reading

Accounting

Tariffs will hit low-income Americans harder than richest, report says

Published

on

President Donald Trump’s tariffs would effectively cause a tax increase for low-income families that is more than three times higher than what wealthier Americans would pay, according to an analysis from the Institute on Taxation and Economic Policy.

The report from the progressive think tank outlined the outcomes for Americans of all backgrounds if the tariffs currently in effect remain in place next year. Those making $28,600 or less would have to spend 6.2% more of their income due to higher prices, while the richest Americans with income of at least $914,900 are expected to spend 1.7% more. Middle-income families making between $55,100 and $94,100 would pay 5% more of their earnings. 

Trump has imposed the steepest U.S. duties in more than a century, including a 145% tariff on many products from China, a 25% rate on most imports from Canada and Mexico, duties on some sectors such as steel and aluminum and a baseline 10% tariff on the rest of the country’s trading partners. He suspended higher, customized tariffs on most countries for 90 days.

Economists have warned that costs from tariff increases would ultimately be passed on to U.S. consumers. And while prices will rise for everyone, lower-income families are expected to lose a larger portion of their budgets because they tend to spend more of their earnings on goods, including food and other necessities, compared to wealthier individuals.

Food prices could rise by 2.6% in the short run due to tariffs, according to an estimate from the Yale Budget Lab. Among all goods impacted, consumers are expected to face the steepest price hikes for clothing at 64%, the report showed. 

The Yale Budget Lab projected that the tariffs would result in a loss of $4,700 a year on average for American households.

Continue Reading

Accounting

At Schellman, AI reshapes a firm’s staffing needs

Published

on

Artificial intelligence is just getting started in the accounting world, but it is already helping firms like technology specialist Schellman do more things with fewer people, allowing the firm to scale back hiring and reduce headcount in certain areas through natural attrition. 

Schellman CEO Avani Desai said there have definitely been some shifts in headcount at the Top 100 Firm, though she stressed it was nothing dramatic, as it mostly reflects natural attrition combined with being more selective with hiring. She said the firm has already made an internal decision to not reduce headcount in force, as that just indicates they didn’t hire properly the first time. 

“It hasn’t been about reducing roles but evolving how we do work, so there wasn’t one specific date where we ‘started’ the reduction. It’s been more case by case. We’ve held back on refilling certain roles when we saw opportunities to streamline, especially with the use of new technologies like AI,” she said. 

One area where the firm has found such opportunities has been in the testing of certain cybersecurity controls, particularly within the SOC framework. The firm examined all the controls it tests on the service side and asked which ones require human judgment or deep expertise. The answer was a lot of them. But for the ones that don’t, AI algorithms have been able to significantly lighten the load. 

“[If] we don’t refill a role, it’s because the need actually has changed, or the process has improved so significantly [that] the workload is lighter or shared across the smarter system. So that’s what’s happening,” said Desai. 

Outside of client services like SOC control testing and reporting, the firm has found efficiencies in administrative functions as well as certain internal operational processes. On the latter point, Desai noted that Schellman’s engineers, including the chief information officer, have been using AI to help develop code, which means they’re not relying as much on outside expertise on the internal service delivery side of things. There are still people in the development process, but their roles are changing: They’re writing less code, and doing more reviewing of code before it gets pushed into production, saving time and creating efficiencies. 

“The best way for me to say this is, to us, this has been intentional. We paused hiring in a few areas where we saw overlaps, where technology was really working,” said Desai.

However, even in an age awash with AI, Schellman acknowledges there are certain jobs that need a human, at least for now. For example, the firm does assessments for the FedRAMP program, which is needed for cloud service providers to contract with certain government agencies. These assessments, even in the most stable of times, can be long and complex engagements, to say nothing of the less predictable nature of the current government. As such, it does not make as much sense to reduce human staff in this area. 

“The way it is right now for us to do FedRAMP engagements, it’s a very manual process. There’s a lot of back and forth between us and a third party, the government, and we don’t see a lot of overall application or technology help… We’re in the federal space and you can imagine, [with] what’s going on right now, there’s a big changing market condition for clients and their pricing pressure,” said Desai. 

As Schellman reduces staff levels in some places, it is increasing them in others. Desai said the firm is actively hiring in certain areas. In particular, it’s adding staff in technical cybersecurity (e.g., penetration testers), the aforementioned FedRAMP engagements, AI assessment (in line with recently becoming an ISO 42001 certification body) and in some client-facing roles like marketing and sales. 

“So, to me, this isn’t about doing more with less … It’s about doing more of the right things with the right people,” said Desai. 

While these moves have resulted in savings, she said that was never really the point, so whatever the firm has saved from staffing efficiencies it has reinvested in its tech stack to build its service line further. When asked for an example, she said the firm would like to focus more on penetration testing by building a SaaS tool for it. While Schellman has a proof of concept developed, she noted it would take a lot of money and time to deploy a full solution — both of which the firm now has more of because of its efficiency moves. 

“What is the ‘why’ behind these decisions? The ‘why’ for us isn’t what I think you traditionally see, which is ‘We need to get profitability high. We need to have less people do more things.’ That’s not what it is like,” said Desai. “I want to be able to focus on quality. And the only way I think I can focus on quality is if my people are not focusing on things that don’t matter … I feel like I’m in a much better place because the smart people that I’ve hired are working on the riskiest and most complicated things.”

Continue Reading

Trending