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Tax Strategy: Trump tax proposals and 2025 tax legislation

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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.

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House passes tax administration bills

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The House unanimously passed four bipartisan bills Tuesday concerning taxes and the Internal Revenue Service that were all endorsed this week by the American Institute of CPAs, and passed two others as well.

  • H.R. 1152, the Electronic Filing and Payment Fairness Act, sponsored by Rep. Darin LaHood, R-Illinois, Suzan Delbene, D-Washington, Randy Feenstra, R-Iowa, Brad Schneider, D-Illinois, Brian Fitzpatrick, R-Pennsylvania and Jimmy Panetta, D-California. The bill would apply the “mailbox rule” to electronically submitted tax returns and payments to allow the IRS to record payments and documents submitted to the IRS electronically on the day the payments or documents are submitted instead of when they are received or reviewed at a later date. The AICPA believes this would offer clarity and simplification to the payment and document submission process while protecting taxpayers from undue penalties.
  • H.R. 998, the Internal Revenue Service Math and Taxpayer Help Act, sponsored by Rep. Randy Feenstra, R-Iowa, and Brad Schneider, D-Illinois, which would require notices describing a mathematical or clerical error to be made in plain language, and require the Treasury to provide additional procedures for requesting an abatement of a math or clerical error adjustment, including by telephone or in person, among other provisions.
  • H.R. 517, the Filing Relief for Natural Disasters Act, sponsored by Rep. David Kustoff, R-Tennessee, and Judy Chu, D-California. The process of receiving tax relief from the IRS following a natural disaster typically must follow a federal disaster declaration, which can often come weeks after a state disaster declaration. The bill would provide the IRS with authority to grant tax relief once the governor of a state declares either a disaster or a state of emergency and expand the mandatory federal filing extension under Section 7508(d) of the Tax Code from 60 days to 120 days, providing taxpayers with more time to file tax returns after a disaster.
  • H.R. 1491, the Disaster related Extension of Deadlines Act, sponsored by Rep. Gregory Murphy, R-North Carolina, and Jimmy Panetta, D-California, would extend the amount of time disaster victims would have to file for a tax refund or credit (i.e., the lookback period) by the amount of time afforded pursuant to a disaster relief postponement period for taxpayers affected by major disasters. This legislative solution would place taxpayers on equal footing as taxpayers not impacted by major disasters and would afford greater clarity and certainty to taxpayers and tax practitioners regarding this lookback period.

“The AICPA has long supported these proposals and will continue to work to advance comprehensive legislation that enhances IRS operations and improves the taxpayer experience,” said Melanie Lauridsen, vice president of tax policy and advocacy for the AICPA, in a statement Tuesday. “We are pleased to work closely with each of these Representatives on common-sense reforms that will benefit taxpayers, tax practitioners and tax administration and we’re encouraged by their passage in the House. We look forward to continuing to work with Congress to improve the taxpayer experience.”

The bills were also included in a recent Senate discussion draft aimed at improving tax administration at the IRS that are strongly supported by the AICPA.

The House also passed two other tax-related bills Tuesday that weren’t endorsed in the recent AICPA letter. 

  • H.R. 1155, Recovery of Stolen Checks Act, sponsored by Rep. Nicole Malliotakis, R-New York, would require the IRS to create a process for taxpayers to request a replacement via direct deposit for a stolen paper check. If a check is determined to be stolen or lost, and not cashed, a taxpayer will receive a replacement check once the original check is cancelled, but many taxpayers are having their replacement checks stolen as well. Taxpayers who have a check stolen are then unable to request that the replacement check be sent via direct deposit. The bill would require the Treasury to establish processes and procedures under which taxpayers, who are otherwise eligible to receive an amount by paper check in replacement of a lost or stolen paper check, may elect to receive such amount by direct deposit.
  • H.R. 997, National Taxpayer Advocate Enhancement Act, sponsored by Rep. Randy Feenstra, R-Iowa, would prevent IRS interference with National Taxpayer Advocate personnel by granting the NTA responsibility for its attorneys. In advocating for taxpayer rights, the National Taxpayer Advocate often requires independent legal advice. But currently, the staff members hired by the National Taxpayer Advocate are accountable to internal IRS counsel, not the Taxpayer Advocate, creating a potential conflict of interest to the detriment of taxpayers. The bill would authorize the National Taxpayer Advocate to hire attorneys who report directly to her, helping establish independence from the IRS. 

House  Ways and Means Committee Chairman Jason Smith, R-Missouri, applauded the bipartisan House passage of the various bills, which had been unanimously passed by the committee.

“President Trump was elected on the promise of finally making the government work better for working people,” Smith said in a statement Tuesday. “This bipartisan legislation helps fulfill that mandate and makes improvements to tax administration that will make it easier for the American people to file their taxes. Those who are rebuilding after a natural disaster particularly need help filing taxes, which is why this set of bills lightens the load for taxpayers in communities struck by a hurricane, tornado or some other disaster. With Tax Day just a few days away, we must look for common-sense, bipartisan ways to make filing taxes less of a hassle.”

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Accounting

In the blogs: Many hats

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Teaching fraud; easement settlement offers; new blog on the block; and other highlights from our favorite tax bloggers.

Many hats

  • Taxbuzz (https://www.taxbuzz.com/blog): There’s sure an “I” in this “teamwork:” What to know about potential IRS and ICE collaboration.
  • Tax Vox (https://www.taxpolicycenter.org/taxvox): How IRS data would likely be unhelpful validating SNAP eligibility.
  • Yeo & Yeo (https://www.yeoandyeo.com/resources): How financial benchmarking (including involving taxes) can help business clients see trends, pinpoint areas for improvement and forecast future performance.
  • Integritas3 (https://www.integritas3.com/blog): One way to take a bite out of crime, according to this instructor blogger: Teach grad students how to detect, investigate and prevent financial fraud.
  • HBK (https://hbkcpa.com/insights/): Verifying income, fairly distributing property, digging the soon-to-be-ex’s assets out of the back of the dark, dark closet: How forensic accounting has emerged as a crucial element in divorces.

Standing out

Genuine intelligence

  • AICPA & CIMA Insights (https://www.aicpa-cima.com/blog): How artificial intelligence and other tech is “Reshaping Finance,” according to this podcast. Didem Un Ates, CEO of a U.K.-based company offering AI advisory services, tackles the topic.
  • Taxjar (https:/www.taxjar.com/resources/blog): How AI and automation can help even the knottiest sales tax obligations and problems.
  • Dean Dorton (https://deandorton.com/insights/): Favorite opening of the week: “The madness doesn’t just happen on college basketball courts — it also happens when your finance team is stuck using a legacy on-premises accounting system.”
  • Canopy (https://www.getcanopy.com/blog): Top client portals for accounting firms in 2025.
  • Mauled Again (https://mauledagain.blogspot.com/): Despite what Facebook claims, dependents have to be human.

New to us

  • Berkowitz Pollack Brant (https://www.bpbcpa.com/articles-press-releases/): This Florida firm offers a variety of services to many industries and has a good, wide-ranging blog. Recent topics include the BE-10, nexus and state and local tax obligations, IRS cuts and what to know about the possible bonus depreciation phase out. Welcome!

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Accounting

Is gen AI really a SOX gamechanger?

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By streamlining tasks such as risk assessment, control testing, and reporting, gen AI has the potential to increase efficiency across the entire SOX lifecycle.

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