Taxes & Tariffs: Preparing for the Incoming Administration

At a glance

• The main takeaway: In January 2025, President-elect Donald Trump will return to office with small Republican majorities in both chambers of Congress. While a wide range of tax proposals have been discussed, it is unclear at this time which will become law.
• Impact on businesses and individuals: It is likely that the new administration will accomplish most, if not all, of its stated tax goals in 2025, especially the expansion of the 2017 Tax Cuts and Jobs Act (TCJA) of 2017, through the budget reconciliation process. However, the timing and details will create some planning challenges and opportunities for taxpayers, which is why it’s best to stay ahead of the developments.
• Next steps: To effectively tax plan, it is crucial to anticipate forecasted tax changes to ensure that operations and transactions are modeled in the most tax-efficient way. Your Aprio Tax Advisor can navigate you through the various tax scenarios and provide guidance on how to maximize the benefits of continuing and new tax legislation.

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The full story

Then-candidate Trump floated several tax proposals and policies during his campaign. The primary theme of the President-elect’s tax plan is centered around extending and expanding the Tax Cuts and Jobs Act (TCJA), which is viewed as the principal legislative accomplishment of his first term. If enacted, the proposals the President-elect has mentioned will impact every class of taxpayer — individuals, estates and trusts, partnerships, international tax, and manufacturing will all have their income taxes affected if these proposals are enacted into law.

Barriers that could impact timing of tax plan

Even with Republican majorities in both houses of Congress, the President-elect will likely face some challenges in enacting his tax plan, in terms of both scope and timing. While many of these new Congress members tied their campaigns to the President-elect, they were not in Congress when the TCJA originally passed, and do not have the same commitment stake in the 2017 legislation. Further, some factions within the House majority have gone on record saying they want to pass bills on border security and other key campaign issues before tackling a tax bill.

Complicating matters even more is the fact that any tax bill the new administration wants will almost certainly be passed through what is called the reconciliation process, just as the prior three administrations have done. However, this bypass is not unconditional; a reconciliation bill may only contain provisions that change spending, revenues, or the debt ceiling and any provision in the bill that would increase the deficit beyond the period covered by the resolution (one fiscal year) must be offset by revenue increases or funding cuts. These rules will somewhat limit what the majority can accomplish in a reconciliation bill.

While the provisions discussed below are grouped by the type of taxpayer directly affected, there will be significant overlap between individual and business taxes. The primary goal of this article is to provide a review of the provisions that are likely impacted by any tax legislation passed by the new administration.

Impact on individual taxation

What’s next for the TCJA?

The incoming administration proposes to extend the sunsetting of TCJA provisions, many of which are set to expire on December 31, 2025. Should they be allowed to expire, tax rates and brackets will revert to pre-TCJA levels, resulting in higher marginal rates for all classes of taxpayers. Additionally, the standard deduction would be reduced by nearly half its current value, which as of 2024 is $29,200 for married taxpayers filing jointly and $14,600 for single taxpayers. The deduction for mortgage interest limits will rise allowing for higher deductions, and charitable deductions will revert to 50% from its current 60% of AGI.

A failure by Congress to extend the provisions of the TCJA and allow the sunsets to occur would have a massive impact on wealth transfer and intergenerational planning. Absent an extension, the lifetime exemption will reduce from $13.99 Million in 2024 to roughly $7 million in 2025 after an adjustment for inflation.

State and Local Tax (SALT) deduction limitation

While the incoming administration is proposing to extend TCJA provisions, they are also looking to revert some parts of the code. In particular, the Trump Administration is considering removing the $10,000 deduction limitation on state and local taxes (the SALT cap). Repealing the SALT cap would allow individuals who pay significant state level taxes to deduct these taxes to other state and local governments.

Auto loan interest deduction

President-elect Trump has proposed a deduction for auto loan interest, which may only be available to taxpayers with vehicles made in the United States.

Child tax credit and caregiver credits

The incoming administration is also considering increasing the child tax credit to a flat $5,000. Currently, the 2025 maximum credit families with children can receive is $2,000. This means all families with children and are under the income limits could see a significant credit applied to their returns.

Along with an increase in the child tax credit, the President-elect also suggested enacting a tax credit for taxpayers who are providing caregiving services to their family members. Specifics on the exact credit amounts and requirements have not been announced at this time.

Green energy tax credits

President-elect Trump has stated his intention to remove green energy credits from the tax code. For individuals this would most likely affect credits associated with clean energy, such as electric vehicles, solar panels, and other similar home installation credits.

Homeownership tax incentives

Part of President-elect Trump’s campaign platform was a promise of new tax incentives for homeowners. While the President-elect did not publicly share the details of these incentives, if passed they would likely share parallels with various first-time homebuyer credits that have previously been enacted.

529 savings plan

The incoming administration has promised to bolster the current education saving plans system. The plans provide incentives for taxpayers to open college saving plans for their dependents by allowing taxpayers to make tax-free contributions to college savings accounts. Currently, contributions are capped at $18,000 annually but may be increased under the tax plan.

Impact on business taxation

New exempt incomes

The Trump Administration has proposed making certain types of income items exempt from taxation. Under the proposal floated during the campaign, all social security payments, tip and gratuities, and overtime pay would be exempt from taxes. It is important to note that at this time what would qualify as wages or tips has not been specified.

Impact on pass-throughs & corporations

President-elect Trump has made several proposals intended to boost U.S. businesses, with a particular focus on manufacturers. These proposals would affect all categories of business taxpayers.

Reduction of the corporate tax rate

The TCJA permanently reduced the corporate income tax rate to 21%, however President-elect Trump’s policy proposal is to decrease the rate to 20%, with a further reduction to 15% for companies that manufacture in the U.S. 

Domestic production activity deduction

While it is unclear how the corporate tax rate proposal would be structured, one way that has been discussed would be to revive a modified form of the domestic production activity deduction. Originally established in 2004, and later repealed by the TCJA, this deduction applies to both small and large businesses that manufacture, grow, produce, or develop goods inside the U.S. If a form of the domestic production activity deduction is reinstated, it is expected to be set at 28%, thus 15%. 

Inflation Reduction Act energy incentives

President-elect Trump has discussed raising revenue by repealing the energy incentives from the Inflation Reduction Act (IRA). The IRA offers corporations a range of energy incentives, primarily through tax credits for renewable energy projects like solar and wind, electricity generated from qualified renewable sources, and additional credits for clean vehicles, energy-efficient buildings, and carbon capture technologies. It is possible, but unlikely, that any planned repeal would apply retroactively.

Qualified opportunity zone investments

Scheduled to expire in 2026, the qualified opportunity zone investments program allows state governors to identify areas that meet certain geographic and economic criteria and designate those areas as “Opportunity Zones.” After the zone is certified by the Department of Treasury, investors can invest in these zones through a Qualified Opportunity Fund, with the purpose of spurring economic growth and job creation in low-income communities while providing tax benefits to investors. President-elect Trump has stated his intent to extend this tax incentive. Republican Senator Tim Scott, who was closely aligned with the Trump campaign, speaking in an interview shortly after the election that he “looks forward” to working with Trump and other Republican lawmakers to “broaden and extend” the tax incentive rather than letting it expire in 2026 as scheduled.

Research and development expenditures

President-elect Trump has stated that he will give U.S.-based manufactures a first-year tax write-off for all research and development expenditures. If implemented, this proposal will reverse a major component of the TCJA. Prior to 2017, taxpayers who made qualified research and experimental expenditures were permitted to deduct those expenditures in the year they were made. However, the TCJA changed that provision, requiring taxpayers to amortize those costs over a period of five years. Legislation on this issue was introduced last year but was not taken up by the Senate.

Section 163j interest expense limitation

Section 163j was enacted to limit the amount of business interest a taxpayer was eligible to deduct up to 30% of earnings before interest and taxes (EBIT). There is currently no scheduled change to this rule, however, it has been proposed to reverse the TCJA provision and allow taxable income to be calculated based on earnings before interest, taxes, depreciation, depletion, and amortization (EBITDA).

President-elect Trump has also proposed a temporary 10% limit on credit card interest. It has yet to be determined if this limit is exclusively on personal credit or would include unsecured business credit. If interest on business credit cards is capped, it may alter the effect of the 163(j) interest expense limitation on some taxpayers. The proposal has not made it clear if this would be expanded to include other unsecured lines of credit.

Bonus and 179 depreciation

The TCJA stipulated a phase-out of bonus depreciation by 20% annually, beginning in 2022. The incoming administration has expressed interest in reinstating the 100% bonus eligibility and eliminating the phase-out. The President-elect has also discussed revamping the accelerated deduction rules under section 179. Currently, Section 179 deductions are limited to a $1 million-dollar of aggregate cost. Any deduction will be phased out by the amount the 179 property exceeds $2.5 million. The new proposal would raise the deduction limit to $2 million dollars, but as of yet, there have been no talks of adjustments to the phase out threshold.

Section 199A qualified business deduction

In an effort to remove any tax distortion in choice of entity arising from the permanent reduction in the corporate income tax rate, the TCJA created the qualified business deduction by enacting Section 199A. This provision allowed pass-through entities (sole proprietorships, partnerships and S-Corporations) to deduct up to 20% of their qualified business income. This provision is set to expire after 2025, but the incoming administration has proposed to make this portion of the TCJA permanent. If Section 199A is allowed to sunset, business owners would have a substantial tax incentive to incorporate their businesses under Subchapter C to take advantage of the lower corporate income tax rate. 

Possible impact on international taxation

Worldwide income of U.S. citizens living abroad

The incoming Trump Administration has proposed eliminating the “double taxation” of U.S. citizens living abroad as part of its tax reform agenda. This initiative seeks to address the unique U.S. practice of taxing its citizens’ global income, even if they reside in another country.

While the U.S. tax code includes provisions such as the Foreign Earned Income Exclusion (FEIE) and foreign tax credits to mitigate this burden, the proposal aims to simplify the tax obligations for expatriates further. However, details regarding how this reform would be implemented remain unclear. Specifically, there is no information on whether high-income earners residing in low-tax countries would face restrictions to prevent tax avoidance, nor how the government would offset potential revenue losses​.

Tariffs

The Trump Administration is exploring an expanded tariff plan that builds on policies from its first term. Key proposals include a universal tariff of up to 20% on all imports and raising the §301 tariffs on imports from China to 60%, up from a current weighted average of 10%. Recently, President-elect Trump has suggested a 25% tariff on all imports from Canada and Mexico as well.

OECD

The Organization for Economic Co-operation and Development (OECD) is an international organization founded in 1961, consisting of 38 member countries. It promotes economic growth, sustainable development, and global trade through policy collaboration and data sharing. The OECD tackles global issues like tax avoidance with initiatives, such as the Base Erosion and Profit Shifting (BEPS) project and tax reform. The OECDs main initiatives are referred to as Pillar 1 and Pillar 2.

• Pillar 1 of the OECD tax reform addresses the digital economy by reallocating profits from the largest multinational enterprises (MNEs) to market jurisdictions where their customers are located, even without a physical presence. This is done through Amount A, which allocates residual profits to market jurisdictions based on revenue and profitability thresholds. Certain industries, like extractive and financial services, are exempt. Pillar 1 also introduces new nexus rules, allowing market jurisdictions to tax without requiring physical presence. Amount B standardizes transfer pricing for basic marketing and distribution functions to ensure consistency. This approach aims to improve tax fairness and replace unilateral digital services taxes with a global framework.
• Pillar 2 sets a global minimum corporate tax rate of 15% to curb tax base erosion and profit shifting (BEPS). The Income Inclusion Rule (IIR) taxes income from low-taxed subsidiaries at the parent level, while the Undertaxed Payments Rule (UTPR) adjusts payments to address low-taxed income. These rules apply to MNEs with revenues above $800 million, exempting smaller businesses.

The Subject to Tax Rule (STTR) enables source countries to impose withholding taxes on certain low-taxed payments like royalties and interest. Pillar 2 aims to limit harmful tax competition and ensure fairness by setting a tax floor, relying on global coordination to avoid double taxation and achieve consistent implementation. On September 17^th, Speaker of the House Mike Johnson sent a letter to the OECD Secretary General expressing opposition to the Pillar 2 global tax deal.

GILTI and FDII

Global Intangible Low-Taxed Income (GILTI) and Foreign-Derived Intangible Income (FDII) are provisions in the U.S. tax code aimed at influencing the taxation of multinational corporations. GILTI was enacted under the Tax Cuts and Jobs Act (TCJA) of 2017 to tax the foreign income of U.S. corporations that exceeds a 10% return on tangible assets, applying a 10.5% rate as of 2023. This rate is set to increase to 13.125% after 2025 due to TCJA phase-out provisions.

FDII, also introduced by the TCJA, offers a preferential tax rate on income derived from foreign sales of goods, services, and intellectual property. The current FDII rate is 13.125% as of 2023, with the potential increase to 16.406% after 2025, in line with TCJA adjustments.

Both GILTI and FDII aim to promote domestic investment and reduce profit shifting by MNEs to low-tax jurisdictions while aligning U.S. tax policy with international tax standards.

The bottom line

Notwithstanding the questions of timing and scope of any new bill, it is virtually certain that there will be tax legislation in 2025. Aprio’s Tax Advisors are closely monitoring the tax landscape and are prepared to help you react quickly and navigate you through the potential changes.

If you have any questions regarding how any of these proposals may affect your individual or business taxes, please contact your Aprio Tax Advisor.