Will President Trump change the federal tax code in 2025?

What could happen with taxes in 2025?

U.S. President Donald Trump speaks on passing tax reform legislation on the South Lawn of… [+] at the White House in Washington, DC, December 20, 2017. Trump hailed a “historic” victory on Wednesday as the US Congress passed a massive Republican tax cut plan, giving the president his first major legislative achievement since his took office almost a year ago. / AFP PHOTO / SAUL LOEB (Photo credit should read SAUL LOEB/AFP via Getty Images)

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Tax is a major topic for 2025. With many provisions of the Tax Cuts and Jobs Act (TCJA) set to expire on December 31, 2025, individuals and businesses alike are wondering how this will impact them. The truth is that no one knows for sure yet, but based on what President-elect Trump and Republican leaders are saying, we have some clues as to what lies ahead.

How new tax laws are passed

Before new tax legislation can come into force, it must go through three essential stages:

1. The House of Representatives: The Republicans currently hold a very slim majority in the House, with only 5 additional seats. That majority will temporarily shrink when three members leave to join the Trump administration, making passage of any major legislation even more difficult until those seats are filled.

2. The Senate: Republicans hold 53 of 100 seats, giving them a slight majority.

3. The President: Once a tax bill passes both the House and Senate, President-elect Trump must sign it.

Why it will be difficult to pass tax laws

The Republican Party has ambitious plans for 2025, but its slim majority in Congress means it has little margin for error. On top of that, lawmakers already face a busy schedule:

Confirmation hearings: The Senate must confirm the choices of the new administration of President-elect Trump. Federal budget: Congress must pass a budget for the fiscal year that began October 1, 2024. Debt ceiling: Lawmakers must address the debt ceiling by March 2025 to avoid a shutdown or default on the debt government.

These pressing issues could delay progress on major tax law changes.

To address these challenges, Republicans will use a process called reconciliation, which allows some bills to pass the Senate with a simple majority (51 votes) instead of the usual 60. This process is faster but has strict rules on what can be included. Republicans may choose to split their efforts into two separate bills:

The first bill, focused on immigration and energy, is expected to be introduced within the first hundred days and should be easier to pass. The second bill, focused on taxes, will be much tougher and could take until the end of 2025 to finalize. What might be in the tax bill?

Many ideas are being discussed for the tax bill. Although nothing is set in stone, here are some of the main points discussed:

Extension or modification of provisions of the TCJA: Many parts of the TCJA are set to expire at the end of 2025. Some of these provisions could be extended as is, while others could be modified or replaced. SALT Deduction: The TCJA capped the state and local tax (SALT) deduction at $10,000. This is unpopular in high-tax states like New York and California, and some lawmakers are pushing to increase or remove the cap. Corporate taxes: Some Republicans want to cut the corporate tax rate even further to encourage business growth, while others are concerned about the impact on federal revenue. Child Tax Credit: Expanding the child tax credit is popular with many lawmakers who want to provide more support to families. Overtime and Social Security Income: President-elect Trump has proposed exempting overtime from income taxes. Additionally, he proposed eliminating taxes on Social Security benefits. Green energy subsidies: Some Republicans want to reduce subsidies for green energy projects that were included in the Inflation Reduction Act of 2022. Tariffs: There are ongoing discussions about imposing tariffs on goods from certain countries, which could affect trade policy. Duration of tax breaks: Some lawmakers are considering shorter tax breaks, such as five years instead of the usual ten, in order to fit more provisions into the bill without exceeding budget limits.

The problem is that not all Republicans agree on these ideas. A small group of dissidents could block the bill. For example, representatives from high-tax states said they would not support the bill unless the SALT cap was addressed.

What does this mean to you?

For taxpayers, 2025 will be a year of uncertainty. While we can expect months of debate and negotiation, the outcome won't be clear until summer or fall 2025. Here's how you can prepare in the meantime:

1. Stay Informed: Pay attention to updates regarding tax law changes. Knowledge is power when it comes to planning.

2. Work with a professional: A CPA or tax advisor can help you navigate potential changes and create strategies to minimize your tax burden. This is especially important if you have a significant income, own a business, or are significantly impacted by the expiration of the TCJA provisions.

3. Be patient: Congress has many competing priorities, and crafting tax laws takes time. Even if changes aren't finalized until late in the year, planning ahead will put you in a better position.

Final Thoughts

While no one can predict exactly what will happen with taxes in 2025, one thing is certain: change is coming, and President-elect Trump is going to do everything he can to achieve that change. The TCJA affects almost all taxpayers, so any extension, modification, or new provision will have widespread impacts. By staying informed and working with a trusted tax professional, you can prepare for any eventuality.

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