Critical Tax Changes Coming in 2025: What Business Leaders Need to Know

As a CPA with over two decades of experience in business taxation, I'm seeing increasing concern from CFOs and business owners about the impending changes to our tax landscape. With major provisions of the Tax Cuts and Jobs Act (TCJA) set to expire in 2025 and significant implications from the upcoming presidential election, strategic tax planning has never been more crucial for business leaders.

The Corporate Landscape Is Shifting

The current 21% corporate tax rate, a cornerstone of the 2017 TCJA, faces potential changes depending on the election outcome. Vice President Harris's proposal to increase this rate to 28% would significantly impact corporate bottom lines. This seven-percentage-point increase could substantially affect business planning and investment decisions.

For pass-through entities, the Section 199A deduction (currently providing a 20% deduction on qualified business income) is scheduled to expire. However, former President Trump's plan would not only extend this provision but increase it to 28.5%. This potential enhancement could create new opportunities for strategic business structuring.

Bonus Depreciation: A Critical Timeline

One of the most significant changes affecting businesses is the phased reduction of bonus depreciation. We've already seen it decrease from 100% through 2022 to 80% in 2023, and it will continue declining: 60% in 2024, 40% in 2025, and potentially zero thereafter. This represents the first time in over two decades we might face a business environment without bonus depreciation.

This phase-out particularly impacts capital-intensive businesses and those planning significant equipment or property investments. The timing of major purchases becomes increasingly critical as we approach these stepdown dates. While both presidential candidates have indicated support for some form of accelerated depreciation, the exact structure remains uncertain.

Interest Expense Limitations

The current interest expense limitations are also set to expire, which could significantly impact highly leveraged businesses and those considering debt financing for expansion or acquisitions. This change could affect everything from day-to-day operations to long-term capital structure decisions.

Pass-Through Entity Tax Elections: A Silver Lining

One bright spot in the current tax landscape is the Pass-Through Entity Tax (PTET) election, now available in over 30 states. This provision has proven particularly valuable for businesses dealing with the $10,000 SALT deduction cap. Even if the SALT cap expires, the PTET election can still provide benefits, especially for businesses subject to Alternative Minimum Tax (AMT).

The Presidential Factor

The upcoming election adds another layer of complexity to tax planning. Former President Trump's proposal includes making equipment expensing permanent and maintaining most TCJA provisions. His plan would also increase the qualified business income deduction and make R&D credits permanent, offering potential stability for business planning.

Vice President Harris's proposals include significant changes to capital gains rates, increasing them to 28% for high-income earners, and limiting 1031 exchange deferrals to $500,000. These changes could substantially impact business exit strategies and real estate investment decisions.

Immediate Action Items for Business Leaders

The time for strategic tax planning is now. With many of these changes taking effect in 2025, businesses need to consider both immediate and long-term strategies. Start by reviewing your capital expenditure plans. If major equipment or property purchases are on the horizon, accelerating these investments to take advantage of higher bonus depreciation rates could provide significant tax benefits.

For businesses considering restructuring or succession planning, the current estate tax exemption of approximately $14 million presents a limited-time opportunity. This exemption is set to be cut roughly in half in 2026, making the next two years crucial for implementing estate planning strategies.

Navigating Uncertainty

While these changes create uncertainty, they also present opportunities for proactive business leaders. The key is developing flexible strategies that can adapt to various tax scenarios while maximizing current benefits. Consider running multiple scenarios in your financial projections to understand the impact of different potential outcomes.

Congress will ultimately shape the final form of any tax changes, regardless of who wins the presidency. The business community's input during this process will be crucial, and staying informed about proposed changes can help you advocate for your interests effectively.

Remember that tax planning isn't just about minimizing current year taxes; it's about creating sustainable long-term strategies that align with your business objectives. Working with experienced tax professionals who understand both the technical aspects and your business goals is crucial in this complex environment.