With Donald Trump back in the White House, major tax law changes could be on the horizon. Many provisions of the 2017 Tax Cuts and Jobs Act (TCJA) are set to expire at the end of 2025, creating an opportunity for potential extensions and new policies.
During his first term, Trump’s tax overhaul nearly doubled the standard deduction, increased the child tax credit, lowered individual tax rates, and introduced a 20% deduction for qualified business income (QBI). His recent campaign promises included eliminating taxes on tips, overtime pay, and Social Security benefits, as well as removing the $10,000 cap on state and local tax (SALT) deductions.
Here’s what business owners and high-net-worth individuals need to consider as 2025 approaches.
Potential Tax Benefits for Business Owners
The TCJA permanently reduced the corporate tax rate to 21%, but its 20% QBI deduction for pass-through entities (S-Corps, partnerships, and sole proprietors) is set to expire at the end of 2025. While there’s bipartisan support for an extension, no final decision has been made.
For business owners, this uncertainty means tax planning is more important than ever. Without the QBI deduction, taxable income could increase significantly. Additionally, the lower marginal tax rates that benefitted pass-through entities are also scheduled to sunset, potentially leading to higher tax liabilities.
With potential legislative shifts, strategic tax planning—such as entity restructuring, retirement contributions, and investment in tax-efficient strategies—will be key for businesses looking to minimize exposure.
Changes to the SALT Deduction Cap
The $10,000 cap on state and local tax (SALT) deductions has been a pain point for many taxpayers, especially in high-tax states like California and New York. Trump has suggested eliminating this cap, but lawmakers are also considering adjustments, such as raising the limit to $20,000 or doubling it for married couples filing jointly.
If the SALT cap is removed or raised, high-income earners in states with high property and income taxes could see a significant tax break. However, this could come at the cost of other TCJA provisions if lawmakers seek alternative ways to offset the revenue loss.
Proposed Tax Breaks on Certain Income
Several of Trump’s proposals involve eliminating taxes on specific income streams:
- Social Security benefits: Retirees with other income sources currently pay tax on up to 85% of their Social Security benefits. Trump has proposed eliminating this tax, which could significantly impact retirement planning.
- Overtime and tip income: Trump has floated the idea of making overtime pay and tips tax-free, which could incentivize certain types of work but may lead to shifts in employment structures.
- Expatriate income: U.S. citizens living abroad currently pay U.S. taxes on foreign-earned income above a set threshold ($126,500 for single filers in 2024). Trump has suggested reducing taxation on expatriates, but details remain unclear.
For business owners and high-net-worth individuals, these potential changes could create new opportunities for tax savings—but also require careful planning to adapt to shifting regulations.
Tariffs and the Creation of the External Revenue Service
Trump has also proposed new tariffs of up to 60% on Chinese imports and a 20% general tariff on all foreign goods. To enforce this, he has floated the idea of an External Revenue Service to collect these duties.
For business owners who rely on imported goods, these tariffs could drive up costs, affecting pricing strategies, supply chains, and profitability. Strategic sourcing and contract renegotiations may be necessary to mitigate the impact.
What’s Next?
The uncertainty surrounding tax law changes makes proactive tax planning essential. Business owners should be prepared for shifts in tax rates, deductions, and international trade policies.
At Elite Tax Partners, we specialize in proactive tax strategies for business owners, helping our clients navigate legislative changes and optimize their tax positions. If you have questions about how potential tax law updates could impact your business or personal tax situation, schedule a consultation with our team today.