Navigating 2025 Tax Provisions Amid Election Uncertainty

AAFCPAs would like to make clients aware that there are several key tax provisions set to expire in 2025. While factors like inflation, election results, and the shifting political landscape may add complexity to tax planning, we advise that clients begin preparations now. Note that changes to estate tax exemptions, the State and Local (SALT) deduction cap, and the qualified business income (QBI) deduction are all on the horizon and could significantly affect small business owners and those with large estates.

One such provision set to expire is the estate and gift tax exemption, which affects parties planning to transfer wealth. Because current exemptions are slated to change, leading to higher tax liabilities, AAFCPAs strongly advises that clients begin the planning process now to ensure their estate plan is up to date. Keep in mind that estate planning takes time and may involve multiple parties including attorneys and tax advisors, all of whom may not have capacity as the expiration nears. The sooner you begin, the higher your priority and position.

Also set to expire is the $10,000 cap on SALT deductions, which could provide some relief for taxpayers in high-tax states. As the deadline approaches, taxpayers could see changes in tax rates. Meanwhile, the gradual phase-out of bonus depreciation will continue. These shifts may affect a range of taxpayers, especially businesses that have relied on current provisions for deductions and planning strategies.

Congressional Control and Tax Legislation

While the race for the White House may dominate headlines, upcoming congressional elections could have an even greater impact on tax policy. Whichever direction Congress takes can significantly influence whether existing tax provisions are extended or left to sunset. If Congress shifts to the right, we could see current tax rules extended, especially if the next president supports them. Conversely, a Democratic victory in both Congress and the White House could hint that some provisions could be rolled-back before their scheduled expiration.

Inflation is another factor to watch given many provisions, such as the standard deduction, are tied to it. As a result, tax brackets and deductions may shift more than expected. States aligning tax code with federal law may also feel its effects, driving changes for both individual taxpayers and businesses.

Key Provisions Set to Expire

As of today, there are several tax provisions set to expire at the end of 2025. But changes introduced under the Tax Cuts and Jobs Act (TCJA) were always meant to be temporary. AAFCPAs advises clients to keep the following key provisions in mind:

• Qualified Business Income (QBI) Deduction: The 20 percent deduction for qualified business income, which currently benefits owners of passthrough entities such as partnerships, S corporations, and sole proprietors, is set to expire in 2026. This deduction has helped small business owners lower their taxes. Without it, many could see a sharp rise in their taxable income.
• Estate and Gift Tax Exemptions: As mentioned, the current estate and gift tax exemptions are scheduled to revert to lower levels after 2025. This could increase estate taxes for individuals who have not planned accordingly.
• Individual Tax Rate Cuts: The TCJA reduced income tax rates for individuals across the board. If Congress does not act, these rates will return to their pre-TCJA levels, which could result in higher taxes for many households.
• Individual Tax Credits and Exemptions: The child tax credit, which doubled to $2,000 per qualifying child under the TCJA, is slated to revert to $1,000 in 2026. Personal exemptions, suspended under the TCJA, will also return, allowing taxpayers to claim $2,000 per person (adjusted for inflation). Additionally, the alternative minimum tax (AMT) exemptions, which were raised under the TCJA, will revert to pre-TCJA levels, potentially increasing the AMT burden for some individuals.
• Corporate Tax Rate: Unlike many other provisions, the TCJA’s change to the corporate tax rate is permanent. The previous tiered structure, which had a top rate of 35 percent, was replaced by a flat 21 percent rate for all corporate taxable income. This lower corporate rate will remain in effect beyond 2025, offering continued stability for businesses.
• State and Local Tax (SALT) Deduction Cap: The current cap on state and local tax (SALT) deductions is set at $10,000, which has significantly impacted taxpayers in high-tax states. After 2025, this cap will expire, letting taxpayers deduct a greater amount of taxes paid throughout the year, including real estate taxes, state or local income taxes, and personal property taxes. This may have an impact on the states that adopted the pass-through entity (PTE) tax, so taxpayers holding interests in partnerships and S corporations will need to monitor the states’ responses to this change.
• Bonus Depreciation: Under Section 168(k), businesses may currently claim an additional first-year depreciation deduction for qualified property placed in service during the year. The TCJA expanded this benefit significantly by allowing both new and used property to qualify for bonus depreciation, a major shift from previous rules that only included new property. From 2018 through 2022, businesses could deduct 100 percent of the cost of eligible property, including equipment, vehicles, and furniture. However, beginning in 2023, this percentage will gradually decrease until the provision sunsets in 2026. At present, 2024 and 2025 percentages are 60 and 40 percent, respectively.

How We Help

Consult with your AAFCPAs tax advisors to develop a strategy ahead of potential shifts. With 50 years of proven tax expertise, we provide a holistic approach that focuses on preserving cash and maximizing value for businesses while offering comprehensive tax planning and compliance for individuals, families, and fiduciaries. Our multi-disciplinary team of Certified Public Accountants, tax strategists, and CERTIFIED FINANCIAL PLANNER™ (CFP®) professionals help clients navigate complex issues including state and local tax compliance, international tax planning, and tax credit consulting.

While it is difficult to predict exactly what will happen, careful planning can ensure you are well prepared for any scenario. Our team is actively monitoring developments and will share updates as appropriate.

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If you have questions, please contact Stacie Field, CPA, MBA, Director, Tax at 774.512.4103 or sfield@aafcpa.com, Erica Nadeau, CPA, MST, Tax Partner at 774.512.4111 or enadeau@aafcpa.com, Richard Weiner, CPA, MST, CM&AA, Tax Partner at 774.512.4078 or rweiner@aafcpa.com—or your AAFCPAs Partner.