President Trump made good on his commitment to sign a myriad of executive orders upon his inauguration. These orders cover foundational tenets from his campaign including border control/immigration, American energy policy and government bureaucracy reformation. The topic of taxation was primarily addressed in the context of announced tariffs and President Trump’s intention to create an External Revenue Service tasked with the collection of “tariffs, duties and all revenue that come from foreign sources.”
Income tax reform, while not front and center in speeches on January 20, 2025, is a critical component of what will likely be an early push to pass legislation. Of paramount importance will be the extension of expiring provisions from The Tax Cuts and Jobs Act (TCJA), enacted in late 2017 and the modification of certain other provisions. For U.S. businesses, large and small, here are several provisions to monitor:
- A possible reduction in the corporate tax rate from 21% to as low as 18%. There has also been discussion of a 15% rate for domestic manufacturers. If enacted, such reductions could alter the overall tax rate arithmetic when choosing legal structures through which to conduct business. For example, a pass-through entity structure (e.g., partnerships and S corporations) with profits ineligible for the qualified business deduction are taxed at 37% for individual owners in the highest income tax bracket. For a C corporation eligible for a 15% tax rate, the overall income tax on profits distributed as qualified dividends would be 32% (i.e., 15% + (20% * 85).
- Extension of the 20% qualified business income deduction (if applicable in the pass-through setting above, the arithmetic would be modified).
- Restoration of full expensing for both research & experimental expenditures and software development costs.
- A return to 100% bonus depreciation.
- Loosening the limitation on business interest deductions so depreciation, depletion and amortization need not be considered in computing the percentage limit.
Barring legislative intervention, several international tax provisions are set to change as well including:
- An increase in the BEAT rate from 10% to 12.5%.
- A decrease in the GILTI deduction from 50% to 37.5%.
- A decrease in the FDII deduction from 37.5% to 21.875%.
President Trump has also effectively removed the United States from the OECD global corporate tax framework, stating that it “has no force or effect in the United States.”
2025 promises to be a dynamic year in terms of legislation. With Republican control of both the House and Senate, the passage of major tax changes seems highly likely. Business leaders should carefully consider and monitor these developments in order to optimally position their organizations.
Content provided by LBMC Tax experts David Frederick and Dennis Metzler.
LBMC tax tips are provided as an informational and educational service for clients and friends of the firm. The communication is high-level and should not be considered as legal or tax advice to take any specific action. Individuals should consult with their personal tax or legal advisors before making any tax or legal-related decisions. In addition, the information and data presented are based on sources believed to be reliable, but we do not guarantee their accuracy or completeness. The information is current as of the date indicated and is subject to change without notice.
