Trump’s Business Tax Cuts: What Happens When They Expire in 2025?

As 2025 approaches, the business community is closely monitoring potential changes to U.S. tax policy, particularly regarding the expiring provisions of the 2017 Tax Cuts and Jobs Act (TCJA). Understanding these provisions and their potential future is crucial for entrepreneurs and small business owners navigating the evolving tax landscape.

The 2017 Tax Cuts and Jobs Act: A Recap

The TCJA, enacted in 2017, brought significant changes to the U.S. tax code, including:

1. Corporate Tax Rate Reduction: Lowered the corporate tax rate from 35% to 21%, aimed at stimulating business investment and economic growth. This change has had substantial effects on business planning and investment decisions over the past several years.
2. Qualified Business Income Deduction (Section 199A): Allowed owners of pass-through entities (such as S corporations, partnerships, and sole proprietorships) to deduct up to 20% of their qualified business income, effectively reducing their taxable income.
3. Immediate Expensing (Bonus Depreciation): Permitted businesses to immediately expense 100% of the cost of eligible property, encouraging capital investment and modernization.

The 2025 Sunset: What’s at Stake for Businesses

Many TCJA provisions are scheduled to expire at the end of 2025. If these provisions sunset without congressional action:

• The corporate tax rate would remain at 21%, as this change was permanent. However, many other business-related provisions would revert to pre-2017 levels.
• Pass-through entities would lose the qualified business income deduction, potentially increasing tax liabilities for small business owners.
• The immediate expensing provision would phase out, requiring businesses to depreciate assets over longer periods, potentially affecting cash flow and investment decisions.

Section 199A Deduction in Action: An Example for Small Business Owners

Consider a sole proprietor who owns a small bakery with $150,000 in qualified business income (QBI). Under Section 199A, this owner can deduct up to 20% of their QBI—$30,000—from taxable income. This deduction lowers their tax liability and allows them to reinvest savings into hiring staff or upgrading equipment. If the deduction expires, the bakery owner would lose this tax break, increasing their taxable income to $150,000 instead of $120,000, and likely paying several thousand dollars more in taxes annually.

Bonus Depreciation: Phasing Out and Why It Matters

The immediate expensing provision of the TCJA (bonus depreciation) has been a game-changer for businesses. It allowed companies to deduct 100% of the cost of eligible assets (e.g., machinery, vehicles, and technology) in the year of purchase. However, this benefit is already phasing out:

• 2023: The deduction dropped to 80%.
• 2024: It decreases to 60%.
• 2025: It further reduces to 40%.
• 2026: Only 20% is deductible.
• 2027 and Beyond: Bonus depreciation returns to pre-TCJA levels, requiring standard depreciation schedules over several years.

Why Act Now:
A manufacturing company purchasing $100,000 of new equipment in 2023 could deduct $80,000 immediately. In 2024, that deduction drops to $60,000, reducing cash flow benefits. Businesses planning large investments should consider accelerating purchases before the provision sunsets completely.

The Potential for a 15% Corporate Tax Rate for Domestic Manufacturers

President Trump has floated the idea of reducing the corporate tax rate to 15% for companies that manufacture goods within the United States. While details remain unclear, the proposal could significantly benefit manufacturers.

Potential Opportunities:

• Enhanced Competitiveness: Domestic manufacturers would enjoy a lower effective tax rate, making U.S.-made products more competitive globally.
• Job Creation: Lower taxes could incentivize companies to expand production facilities in the U.S., boosting employment.

Potential Challenges:

• Complex Definitions: Defining and enforcing “domestic manufacturing” may require additional guidelines, potentially complicating compliance.
• Revenue Impact: Reducing the tax rate for a specific sector could lower federal tax revenues, increasing the deficit unless offset by other measures.

Example:
A U.S.-based furniture manufacturer with $1 million in taxable income currently pays $210,000 in corporate taxes at the 21% rate. Under the proposed 15% rate, their tax liability would drop to $150,000, freeing up $60,000 to reinvest in hiring, equipment, or R&D.

Impact on Small Businesses and Pass-Through Entities

Small businesses, particularly those structured as pass-through entities, face unique considerations:

1. Benefits for Small Businesses Under Current Law:
   • Substantial tax savings through the qualified business income deduction.
   • Enhanced ability to invest in growth through immediate expensing provisions.
   • Increased cash flow for operations and expansion.
2. Challenges Facing Small Businesses:
   • Planning uncertainty due to the approaching sunset provisions.
   • Complexity in navigating tax benefit qualifications and limitations.
   • Potential need for increased professional tax assistance.

Current Deductions and Write-Offs

The TCJA implemented several changes to deductions that remain relevant:

• Elimination of the Domestic Production Activities Deduction (DPAD): The TCJA repealed this deduction, which previously benefited domestic manufacturers.
• State and Local Tax (SALT) Deduction Cap: Capped at $10,000, this continues to affect businesses and individuals in high-tax states.
• Expanded Standard Deduction: Simplified tax preparation but offers mixed benefits for business owners depending on their situation.

Planning for the Future

As 2025 approaches, businesses should consider several strategies:

• Consult Tax Professionals: Understand how potential changes could affect your specific situation.
• Accelerate Investments: Take advantage of immediate expensing provisions before they phase out.
• Evaluate Business Structure: Consider whether restructuring your business could provide tax advantages under future policies.
• Monitor Developments: Stay informed about legislative actions that may extend or modify expiring provisions.

Conclusion

The approaching expiration of key TCJA provisions presents both challenges and opportunities for American businesses. While the future of these tax provisions remains uncertain, understanding their current impact and planning for potential changes is crucial for business success. Entrepreneurs and business owners should take proactive steps to maximize current benefits and prepare for legislative shifts.

Disclaimer:

Tax laws and policies are subject to change. This article provides general information, analysis, and opinion and should not be considered tax or legal advice. Consult with qualified tax and legal professionals for guidance specific to your situation.