President Trump has now settled into the White House, and there are major implications for tax policy and business owners that aren’t getting the headlines. The Tax Cuts and Jobs Act (TCJA) was one of the defining accomplishments of his first term, and it made big changes to the tax code. However, many of its provisions are set to expire by the end of the year. Clients are asking how the extension of the TCJA will impact small businesses and what to expect in terms of tax changes for 2025.
Here’s the question: Will Trump and Congress extend, modify, or let these provisions expire? Either way, there will be tax implications for businesses across the country.
Let’s be aware of change but not reactive in our thinking.
Small business owners should be aware of potential tax changes for 2025, but I should stress that there’s a lot of uncertainty at the moment; there’s no need to panic or be reactive. We just need to keep a year-round tax planning mindset.
Small business owners should take these four steps:
- Monitor developments
- Understand the provisions that may change
- Prepare for shifts in tax policy
- Make the most of tax benefits while they exist.
One thing we know: The tax code will change. Even if the TCJA is extended, it won’t be the same law we saw in 2017 and won’t have the exact same provisions regarding tax issues.
How will the extension of the TCJA impact small business tax changes in 2025?
Let’s start with where we are now. There are five segments of the TCJA that most significantly impact businesses. You should understand all of them to know how your tax situation could change.
1. The law may retain provisions for accelerated depreciation and bonus depreciation.
Provisions for accelerated depreciation allowed businesses to deduct 100% of eligible assets, like machinery, software, and property, in the year they are placed in service.
Bonus depreciation allows businesses to fully deduct certain investments for five years. It will gradually decrease by 20% annually from 2023 to 2026. So, now is the time to look at the depreciation strategies your business is currently using: from depreciation schedules on renovation projects to depreciation on cars and vehicles, and how you can adjust your accounting and strategy to account for tax changes in 2025, 2026, and beyond.
2. Business interest deduction limits are likely to stay.
The TCJA limits the amount of interest businesses can deduct. At first, they could deduct up to 30% of their earnings before interest, taxes, depreciation, and amortization (EBITDA). In 2022, the rule became stricter, allowing 30% of earnings before interest and taxes. Businesses making less than $25 million a year are exempt.
3. Net operating loss limitations may be tightened.
The TCJA limits net operating loss deductions to 80% of taxable income. Before the Act, losses could offset all taxable income. So, in this case, the extension of TCJA limits, if kept unchanged, would negatively impact small business deductions.
4. The Qualified Business Income (QBI) deduction looks like it will not be lowered.
The TCJA introduced a 20% deduction for pass-through businesses such as S corporations, partnerships, and sole proprietorships on “qualified business income,” which is the net amount of qualified items of income, gain, deduction, and loss from any qualified trade or business. Examples include:
- Capital gains or losses
- Dividends
- Interest on income not related to the business
- Distributions or draws from a partnership or S corp
- Income from outside the United States
Back in September of 2024, I wrote an article detailing the potential fallout if the QBI deductions were to expire. If I had to guess, then I’d guess that the 20% QBI in the TCJA will remain, and we’re going to avoid disruptive tax changes for 2025 and the years to follow.
5. State and Local Tax (SALT) deduction caps will remain unchanged.
SALT deductions are capped at $10,000, and there’s not much reason to believe that will change under this Congress.
Trump has pledged to extend the TCJA.
He’s said it will be a priority a few times, including at a Palm Beach fundraiser last April¹ and during a visit to the Senate building on January 6, 2025.² Remember, though, that Congress, not the President, will be writing the laws that determine if and when tax changes in 2025 come to fruition.
But some provisions are likely to change.
The estimated price tag for extending all the provisions of the TCJA amounts to roughly $4.6 trillion, according to the nonpartisan Congressional Budget Office.³ With such a hefty potential bill, experts agree some aspects of the TCJA will have to be different.
According to Rochelle Hodes, a principal in the Crowe National Tax Office, “If they are allowed to expire, that would raise the tax for many individuals, which is an unattractive proposition for any president or for Congress.
The decision will have to be made about which will be allowed to expire [and] whether or not some of the provisions will be changed in order to accommodate whatever budget goals are agreed upon.”⁴
Trump has also pushed to eliminate tax on tips.
Not all of the potential fiscal changes relate to the TCJA. During his presidential campaign, Trump pitched the idea of eliminating federal taxes on tips for service workers.⁵
That adjustment could lower payroll taxes for business owners and reduce pressure for higher wages, though some economists fear the move could deplete state and federal budgets.⁶
Uncertainty may slow growth.
David Kelly, Chief Global Strategist at J.P. Morgan Asset Management, warns that uncertainty surrounding tax policies like the TCJA could have significant economic consequences. “Much has been said about the potential for the new administration’s policies to add to inflation pressures. Investors should also consider how these actions, and the uncertainty surrounding them, could slow economic growth.”⁷
Be prepared for the expiration of the TCJA.
Now is the time to take advantage of favorable tax rules while they’re still available.
While Trump and fellow Republicans have expressed their desire to make some TCJA components permanent, negotiations and budget concerns will shape the outcome.
Get proactive. Talk to a CPA advisory firm.
Meet with your Certified Public Accountant (CPA) soon for more information on the status of potential 2025 tax changes and how the extension of the TCJA provisions will impact your small business, from operations to tax liability. Then, you can adjust your strategy accordingly.
My team is equipped to develop a flexible strategic tax plan for your business. Schedule a discovery call today.
Talk soon,
Jeremy A. Johnson, CPA
References
- Luhby T. Trump tells wealthy donors he wants to extend his 2017 tax cuts. here’s why they’d benefit the most | CNN politics [Internet]. Cable News Network; 2024. Available from: https://www.cnn.com/2024/04/10/politics/trump-2017-tax-cuts-rich/index.html
- Cortellessa E. Inside Trump’s second administration [Internet]. Time; 2025. Available from: https://time.com/7208202/trump-inauguration-second-term-preview/
- Sanders B. Extending Trump Tax Cuts Would Add $4.6 Trillion to the Deficit, CBO Finds. [Internet]. U.S. Senate Committee on the Budget. May 2024. Available from: https://www.budget.senate.gov/chairman/newsroom/press/extending-trump-tax-cuts-would-add-46-trillion-to-the-deficit-cbo-finds
- Gargano F. TCJA extensions or revisions: What lies ahead for 2025. Accounting Today. November 2024. Available from: https://www.accountingtoday.com/news/tcja-extensions-or-revisions-what-lies-ahead-for-2025
- Bose N. Trump visits Las Vegas to discuss tax on tips. Reuters. [Internet]. January 2025. Available from: https://www.reuters.com/world/us/trump-visits-las-vegas-discuss-tax-tips-2025-01-25/
- Cooper D, Mast N. ‘No tax on tips’ will harm more workers than it helps. [Internet]. Economic Policy Institute; 2024 Feb 6. Available from: https://www.epi.org/blog/no-tax-on-tips-will-harm-more-workers-than-it-helps-proposals-in-congress-and-now-20-states-could-encourage-harmful-employer-practices-and-lead-to-tip-requests-in-virtually-every-co/
- Sutton S. Wall Street frets as Trump policies stoke uncertainty. Politico. 2025 Feb 19. Available from: https://www.politico.com/news/2025/02/19/wall-street-trump-uncertainty-federal-reserve-00204896