Anticipated IRS Changes with New Administration: A Lot to Digest

President-elect Donald Trump’s second term could significantly reshape the U.S. tax landscape over the next four years.

“The IRS and federal tax code can expect a shakeup as the U.S. presidency changes hands,”reported Kiplinger Personal Finance. “President-elect Donald Trump’s tax agenda will be busy this year, starting with tackling the looming tax cliff tied to the Tax Cut and Jobs Act (TCJA). Trump has also proposed ending taxes on tipped workers, as well as abolishing income tax on Social Security benefits.”

Extending the TCJA -- Many provisions of the TCJA, particularly those affecting individuals and families, are set to expire at the end of 2025 – appears to be at the top of the new administration’s tax agenda, but only part of ambitious tax policy changes touted during the presidential campaign.

“Former President Donald Trump has floated several tax policy ideas, including extending the expiring 2017 Tax Cuts and Jobs Act (TCJA) changes, bringing back the deduction for state and local taxes (SALT), reducing the corporate tax rate for domestic production, exempting various types of income from the income tax, repealing green energy tax credits, and imposing steep new tariffs,” reported the Tax Foundation.

For individuals, businesses, and tax professionals, there is a lot to digest in the coming months. Here’s a preview of some of the anticipated IRS changes with the new administration.

Understanding the Tax Cuts and Jobs Act (TCJA) Sunset

The Tax Cuts and Jobs Act (TCJA) was a major overhaul of the U.S. tax code, signed into law by President Donald Trump on January 1, 2018. It was the largest tax reform in three decades, making sweeping changes to both individual and corporate taxation.

Key provisions of the TCJA were:

Individual Tax Changes

• Lowered individual income tax rates and adjusted tax brackets.
• Nearly doubled the standard deduction.
• Eliminated personal exemptions.
• Expanded the Child Tax Credit.
• Capped the state and local tax (SALT) deduction at $10,000.
• Limited the mortgage interest deduction.
• Increased the Alternative Minimum Tax (AMT) exemption.

Business Tax Changes

• Reduced the corporate tax rate from 35 percent to 21 percent.
• Introduced a 20 percent deduction for qualified pass-through business income.
• Allowed 100 percent bonus depreciation for certain business assets.
• Modified the taxation of international business income.

Many provisions of the TCJA, particularly those affecting individuals and families, are set to expire at the end of 2025. And many provisions impacting businesses, including pass-through entities, are set to expire between 2025 and 2028, according to the Tax Foundation.

This sunset of the legislation was built into the law for budget reconciliation and cost containment.

Extending the TCJA Provisions Beyond 2025

Extending the TCJA provisions beyond 2025 would require new legislation. The process for extension could take several forms:

• Full extension: Congress could vote to make all expiring provisions permanent.
• Partial extension: Lawmakers might choose to extend only certain aspects of the TCJA.
• Modified extension: Congress could extend some provisions while making changes to others.
• Short-term extension: If a full agreement can't be reached, a temporary extension could be passed to allow more time for negotiations.

It's important to note that the timing of any extension legislation is uncertain. Given the political process, a new law might not pass until well into 2025, creating a limited window for implementation and planning.

“If Congress doesn’t extend the TCJA, then nearly every American will be impacted by the sunsetting provisions,” said the Tax Foundation. “To help ensure taxpayers are aware of the changes, accounting professionals need to stay informed of any extensions that may arise and also the ramifications should Congress let the Act expire.”

President-elect Trump has proposed extending or making permanent many of the individual tax provisions from TCJA. This could include:

• Rates and brackets: Maintaining the current seven tax brackets and their rates, including the top rate of 37 percent.
• Standard deduction: Keeping the nearly doubled standard deduction.
• Personal exemption: Likely remaining eliminated.
• Child tax credit: Potentially increasing to $5,000 per child.
• AMT changes: Maintaining higher exemption amounts and phase-out thresholds.
• Section 199A pass-through deduction: Extending the 20 percent deduction for qualified business income.
• SALT cap: Possibly removing or increasing the $10,000 cap on state and local tax deductions.

These changes would generally benefit taxpayers across income levels, particularly middle and high-income earners.

Individual and Business Tax Proposals

President-elect Trump has also proposed several new tax exemptions:

• Exempting tips, Social Security benefits, and overtime pay from income taxes.
• Creating an itemized deduction for auto loan interest.

These measures could provide significant tax relief for many workers, retirees, and car owners.

President-elect Trump has proposed lowering the corporate tax rate from 21 percent to 20 percent, with a potential further reduction to 15 percent for companies that manufacture in the U.S.

“This reduction is designed to stimulate business investment and economic growth by allowing corporations to retain more of their earnings,” reports Thomson Reuters.

He also aims to restore several TCJA business provisions:

• Reinstating 100 percent bonus depreciation.
• Restoring immediate expensing for R&D costs.
• Reverting to an EBITDA-based interest limitation.

These changes could incentivize business investment and R&D spending.

Other Tax Changes on the Horizon

Here are other tax changes to keep an eye on:

• Domestic Production Activities Deduction: President-elect Trump has proposed reinstating and expanding the Domestic Production Activities Deduction to 28.5 percent, effectively lowering the corporate tax rate to 15 percent for domestic production. This could significantly benefit U.S. manufacturers and encourage reshoring of production.
• Estate Tax Changes: President-elect Trump has proposed making the TCJA’s increased estate tax exemption permanent. This would maintain the higher exemption amount ($13.61 million per individual in 2024), benefiting wealthy individuals and their heirs.
• Green Energy Subsidies: President-elect Trump plans to repeal the clean energy provisions enacted in the Inflation Reduction Act. This could negatively impact the renewable energy sector and related industries.
• Tariffs: President-elect Trump has proposed raising tariffs on Chinese imports to 60 percent and imposing a universal 20 percent tariff on all U.S. imports.

“[Tariffs] could have far-reaching effects on businesses that rely on international trade, necessitating a reevaluation of supply chains and cost structures,” reported Thomson Reuters.

The Impact of Coming Tax Changes is Up for Debate

The likely impact of coming tax changes is currently being debated as congress begins a new term and President-elect Trump is ready to be sworn in for his second term.

“The impact of Trump’s proposals will vary significantly depending on which combination of policies are pursued and how exactly each policy is structured,” says the Tax Foundation.

On the positive side, the Tax Foundation says: “Some of Trump’s tax proposals are well-designed and would be efficient ways to promote long-run economic growth, such as permanent expensing for machinery, equipment, and research and development (R&D).”

On the other hand, the Tax Foundation says: “Some of his tax proposals are poorly designed and would worsen the structure of the tax code while only creating a muted impact on long-run economic growth, such as the exemptions for tips and Social Security income.”

At the very least, individuals, businesses, and tax professionals will need to pay close attention in the coming months to any changes, especially the fate of the TCJA.