Planning Update: How the 2024 Election Could Shape 2025 Tax Reform

Announcements
November 15, 2024

With the conclusion of the 2024 election, attention is now focused on potential tax reforms set to unfold in 2025. The scheduled expiration of key provisions from the 2017 Tax Cuts and Jobs Act (TCJA) looms, posing significant implications for both individual taxpayers and businesses. If Congress does not act, these changes may result in higher tax rates and the rollback of several deductions and credits.

The TCJA introduced lower individual tax rates, but these are set to revert to pre-2017 levels by the end of 2025. This would mean an increase in the top tax rate from 37% to 39.6%, affecting higher-income earners most significantly. Additionally, the nearly doubled standard deduction will expire, leading to increased taxable income for many. Other critical provisions set to sunset include the $10,000 cap on the state and local tax (SALT) deduction and the expanded estate tax exemption. For business owners, the expiration of the 20% Qualified Business Income (QBI) deduction could reduce tax benefits for pass-through entities, such as LLCs and S-corporations. 1

Without legislative intervention, these shifts could increase tax liabilities across the board. The Congressional Budget Office estimates that extending these provisions would reduce federal revenues by $4.6 trillion over the next decade, posing a challenge for deficit management and economic stability.2

The election results, which saw President-Elect Trump and a Republican-controlled Senate poised to shape legislative efforts, suggest a focus on extending many TCJA provisions. Republicans are likely to push for making these tax cuts permanent, retaining the higher standard deduction, and potentially further lowering the corporate tax rate from its current 21%. Discussions may also include maintaining or expanding the estate tax exemption, a significant factor for wealth transfer planning. The SALT deduction cap is a more divisive issue; while some Republicans may favor its continuation to limit deductions for high-income taxpayers, others, particularly from high-tax states, may push for adjustments.

On the other side, Democratic-led initiatives are likely to face challenges in advancing their tax agenda. Proposals such as raising corporate tax rates, increasing estate and wealth taxes, and revising capital gains rates for high earners may encounter significant resistance. Efforts to expand tax credits for green energy projects and secure continued IRS funding for enhanced enforcement and modernization, initially bolstered by the 2022 Inflation Reduction Act, could also be curtailed.

As 2025 approaches, tax reform will remain a central topic in Washington. The delicate balance between sustaining lower tax rates and addressing federal revenue concerns will drive legislative discussions. Taxpayers and businesses alike should stay informed and prepare for potential changes that could impact their financial planning.

At IEQ Capital, we recognize that tax policy changes can create uncertainty and impact long-term financial strategies. Our team proactively monitors legislative developments to understand their implications and incorporates tax-efficient strategies to help clients mitigate potential liabilities and optimize after-tax returns. This involves revisiting estate planning, adjusting income and gift strategies, and leveraging business ownership opportunities. With tailored advice and comprehensive portfolio management, we seek to guide clients through complex tax environments with proactive planning and guidance, to help them navigate changes and stay on track toward their financial goals.

Disclosures

  1. Bloomberg: 2025 Tax Policy Crossroads: What will happen When the TCJA Expires?
  2. Grant Thornton: CBO pegs cost of TCJA extension at $4.6 trillion

 

This material has been created for educational and informational purposes only and is subject to change. Any discussion of tax issues contained in this analysis are general in nature and is provided for informational purposes only. It may not be suitable for all investors. Information has been obtained from sources believed to be reliable, but its accuracy and completeness are not guaranteed. Please consult your legal and tax advisors before taking any action that may have tax or legal consequences and to determine how this information may apply to your own situation. Whether any planned tax result is realized by you depends on the specific facts of your own situation at the time your taxes are prepared.

This material is not intended to be, and should not be, construed as an offer to sell or a solicitation of an offer to buy any security or financial instrument. This information should not be relied upon as the basis for any investment decision and should not be construed as investment advisory advice.

As applicable, current U.S. tax law concepts are used in this analysis. However, you should understand that IEQ Capital is not, and does not hold itself out to be, an advisor as to legal or taxation matters in any jurisdiction. Nothing contained in this report should be construed as tax advice and cannot in any case be relied upon to avoid the imposition of US tax-related penalties.

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