If 2024 was a year of politics, 2025 will surely be a year of policy shift. The election of Donald J. Trump to a second term has brought hope that some expiring provisions from the Tax Cuts and Jobs Act (“TCJA”) may be rekindled, and that some expired provisions may be reenacted. Numerous business tax changes are sure to follow, if not immediately, likely over the next year. The President and new Congress will be challenged to enact favorable business tax changes while balancing the overall budget cost; practitioners and companies will be busy planning for this potential seismic shift.
Below are several potential changes that could take place over the next year.
- Section 174 – Direct Expensing of R&D Expenses
Prior to 2022, R&D costs incurred by a company were generally expensed directly. Any tax losses that resulted could be carried forward for use against future taxable income. The TCJA created a provision within IRC Section 174 that required capitalization and amortization of R&D costs. Elimination of section 174 would effectively bring companies back to pre-TCJA rules, allowing for current expensing of R&D costs.
- Commentary: The cancellation of Section 174 has been a hot topic for the last two years and has been included with legislation several times but never passed. General consensus is that the new administration will be keen to change this policy quickly, and with an estimated budget price tag of $120 billion, this is one of the lower costs of the TCJA and should provide significant benefit to businesses. It is not clear whether any change would be prospective or retroactive.
- Commentary: The cancellation of Section 174 has been a hot topic for the last two years and has been included with legislation several times but never passed. General consensus is that the new administration will be keen to change this policy quickly, and with an estimated budget price tag of $120 billion, this is one of the lower costs of the TCJA and should provide significant benefit to businesses. It is not clear whether any change would be prospective or retroactive.
- Bonus Depreciation
The TCJA had allowed for 100% accelerated depreciation for qualified assets through 2022. Beginning in 2023, the ability to claim a full deduction will be phased down and will be eliminated for most property placed in service starting in 2027.
- Commentary: President-elect Trump and congressional Republicans have signaled their support of restoring “bonus” cost recovery for capital expenditures that drive infrastructure and business growth. However, restoring full bonus depreciation would cost an estimated $378 billion, an amount that would likely invite a broader budget discussion.
- Commentary: President-elect Trump and congressional Republicans have signaled their support of restoring “bonus” cost recovery for capital expenditures that drive infrastructure and business growth. However, restoring full bonus depreciation would cost an estimated $378 billion, an amount that would likely invite a broader budget discussion.
- Potential Corporate Tax Rate Reduction
The TCJA lowered corporate tax rates in the United States from 35% to 21%, with the aim of making the corporate tax rate more competitive to multinational companies. President-elect Trump has signaled his desire to again reduce the corporate tax rate to 20%, and potentially to 15% for companies that manufacture in the U.S.
- Commentary: Budgetary considerations will likely shape the discussion about extending corporate tax cuts, as they will increase the budget deficit. However, research from the Tax Foundation estimates that lowering the corporate income tax rate to 15 percent would increase long-run GDP by 0.4 percent, wages by 0.4 percent, and employment by about 93,000 full-time equivalent jobs.
- Commentary: Budgetary considerations will likely shape the discussion about extending corporate tax cuts, as they will increase the budget deficit. However, research from the Tax Foundation estimates that lowering the corporate income tax rate to 15 percent would increase long-run GDP by 0.4 percent, wages by 0.4 percent, and employment by about 93,000 full-time equivalent jobs.
- International Tax Changes
Multinational corporations have been hit with many new tax changes over the last several years, from changes imbedded within TCJA as well as the OECD Pillar 2 initiative. We will devote a separate newsletter to potential changes in international taxation, which are numerous given President-elect Trump’s plans to increase tariffs on foreign goods.
Stay tuned for this continually evolving topic!
