As we embark on the new year and look forward with hope for a successful 2025, a realistic view is that there is still uncertainty in the 
marketplace. So any plans for major initiatives in our businesses and personal lives should be viewed with caution. But that doesn’t mean hunkering down and bracing for a bad year. It just means that it will inevitably be a year of change – economic, political, and social – and taxpayers should work with their advisors to ensure that their strategies are aligned with the new realities.
That change will occur this year is certain – a new administration in Washington has indicated significantly different priorities than the previous administration, so tax laws will certainly change. The only question is how much and when. Additionally, many provisions of the Tax Cuts and Jobs Act of 2017 (TCJA) will “sunset” on December 31, 2025, unless they are extended or made permanent by Congress this year. With the man who originally signed the TCJA – President-elect Donald Trump – back in the White House, the prospects for making the more popular provisions permanent would seem reasonably good.
Good News?
This could be good news for certain business owners, particularly those who own pass-through businesses. The popular qualified business income (QBI) deduction, which allows pass-through owners to deduct 20% off their top-line revenues, subject to certain limitations, is scheduled to sunset. But there is bipartisan support in Congress for extending it or making it permanent.
On the other hand, a widely disliked provision of the TCJA – the $10,000 limitation on the deductibility of state and local taxes (SALT) – also is scheduled to sunset in 2025, and taxpayers in high-tax states would like to say good riddance to it.
While there was talk during the recent presidential campaign of lowering the corporate tax rate to 15%, that’s a pretty far reach and other business-friendly tax priorities – such as returning to immediate R&D tax credits – would probably take precedence. But with other well-known low-tax countries maintaining rates at around 10% (such as Ireland), a corporate rate of 15% here would spur much more domestic production and likely make the U.S. more competitive than it has been for many years.
The mix of TCJA provisions, new tax laws and repealed tax laws that exist one year from today will likely be very different than what we have now. At this point, we can only speculate on what may happen.
One reality of changing tax laws is that, even when a bill is signed into law, there’s still uncertainty as to how it will read once it is applied. After legislation is enacted, there are often months of regulation writing by the IRS and various federal agencies that are affected. Those regulations provide guidance that tax accountants and other advisors rely on when advising their clients. But as your tax and business advisors, we will closely watch what happens in Washington and will advise you along the way as to any changes you should make – or not make – in order to maximize the benefits you can realize from the new tax laws.
Inflation
Adding to the uncertainty is the specter of inflation. While the Federal Reserve knocked down the key interest rate by 25 basis points in December – the third such reduction during 2024 – Fed Chairman Jerome Powell warned that further cuts in 2025 would be sparse as the Fed continues to guard against inflation. So the current federal funds target rate of 4.25% to 4.5% is likely to hold for a while.
The question of how to control inflation while trying to strengthen and grow the economy is a vexing one. Historically, periods of inflation have often been broken by recessions. But no one wants a recession. Still, voters voiced deep concern about inflation during the recent presidential campaign, so the new administration will be under pressure to keep inflation in check while keeping the economy afloat. While the 2024 inflation rate was a comfortable 2.75%, the prices of many consumer goods and manufacturing components remain at high levels that they hit in 2022 when the inflation rate soared to 9%.
Patience
I have heard some in the business community express excitement about the possibility that the immediate R&D tax credit could be reinstated before March this year, in time for the corporate tax deadline. Knowing how slowly the gears grind in Washington, that seems unlikely.
Regardless of what your favorite tax break is or what your personal tax situation is, it will be important this year to remain patient. You may get your wish, but maybe not in the first year of the new administration.
So, stay the course, keep up with the news, ask questions and speak regularly with your advisors. If you have a plan to make major changes or capital expenditures for your business, definitely talk to your advisors before making any commitments. And if you have re-ordered your estate plan around the 2025 expiration of the current estate tax exemptions, don’t make any changes without talking with your advisors.
Significant changes will likely occur this year, but until we know exactly what they are and how they will impact you, your business and your family, it’s best to sit tight.
Happy new year.
