There has been much action in Washington D.C. with the new administration. One of the talking points that is still in process is the “One, Big Beautiful Bill” that addresses tax reform.
Sunset Provisions
Under the Tax Cuts and Jobs Act (TCJA) enacted during the first Trump administration, Congress passed the bill under a process referred to reconciliation – to streamline approval certain measures were included to reduce the project costs of the TCJA. One such measure was to “sunset” certain provisions so that they would automatically terminate. Many of the provisions sunset at the end of this year or at the end of next. Some of those include the following:
- Top individual marginal rate set to increase from 37% to 39.6%.
- In certain cases, tax rates for owners of S corporations and tax partnerships, such as limited liability companies that are taxed as partnerships are reduced by up to 20% under Internal Revenue Code Section 199A. For example, if a partner has ordinary income from an LLC that would be subject to 37%, the 199A deduction could reduce that rate to 29.6%. The 199A deduction is set to expire.
- Current law permits “bonus depreciation”, which initially allowed for writing off 100% of the purchase price for certain assets. In 2025, bonus depreciation is 40%, and 20% in 2026 before expiring.
- Investments in qualified opportunity zones can provide for tax benefits to investors (e.g., a permanent exclusion from income for investments held for 10 years). This benefit is set to expire next year.
- Increased gift and estate tax exclusion amounts are set to revert to prior limits.
Another provision we see important to businesses is R&D expensing. The TCJA, as part of the reconciliation process, modified Internal Revenue Code Section 174, beginning in 2022, to no longer allow businesses to deduce 100% of R&D expenses in the year of expenditure. Instead, domestic R&D expenses are now deductible over six tax years (10% in the first and last tax years, and 20% in the interim years), and foreign R&D expenses over sixteen tax years).
Many believed that Congress would delay or eliminate the change to R&D expensing, but attempts to this point have so far been unsuccessful in revising the law to revert back to 100% expensing.
Proposed Reform
Making some of these tax provisions permanent is one of the expected outcomes of tax reform. Other changes could also be made. President Trump’s proposals include a reduction in the corporate income tax rate from 21% to 20% or even 15%; the introduction of a deduction for interest paid on loans for domestic cars and trucks; and the elimination of taxes on tips, overtime, and Social Security benefits. President Trump has also proposed new tariffs.
Both houses of Congress are still working through tax reform, and so it is yet to be seen what changes will be made. But changes are anticipated to happen sometime this year.
Chase Manderino frequently advises regarding federal tax matters. For additional information, please contact chase@mbakertaxlaw.com.