As the economic landscape evolves and tax policies shift, it’s essential for financial advisors and business owners to stay ahead of potential legislative changes.
The following proposed reforms aim to provide greater predictability, simplify compliance, and adjust incentives in both personal and business taxation. Here’s a breakdown of what could be on the horizon:
1. Individual Income Tax Reforms
- Tax Brackets & Inflation Adjustments
The expiring individual income tax rates and bracket thresholds introduced under the Tax Cuts and Jobs Act (TCJA) would become permanent. Inflation adjustments would be increased for all brackets, excluding the 37% bracket threshold.
- Standard Deduction Enhancements
The current standard deduction levels would be made permanent. From 2025 through 2028, temporary boosts would include:
- $2,000 for joint filers
- $1,500 for head-of-household filers
- $1,000 for all other filers
- Personal Exemption & Itemized Deduction Rules
The elimination of the personal exemption would be made permanent. Additional changes to itemized deductions include:
- A permanent $750,000 mortgage interest cap and exclusion of home equity loan interest
- A SALT deduction cap of $30,000, phasing down to $10,000 for higher-income earners
- Permanently disallowing certain deductions (e.g., miscellaneous itemized deductions, Pease limitation, moving expenses)
- Capping the value of itemized deductions at 35 cents per dollar
2. Family & Credit Modifications
- Child Tax Credit
The expiring child tax credit would be made permanent, with a temporary increase to $2,500 from 2025 through 2028. Post-2028, the $2,000 credit would be inflation-adjusted.
- AMT (Alternative Minimum Tax) Changes
The TCJA’s increased exemption amounts and phase-out thresholds for AMT would be permanently preserved.
3. Temporary Individual Incentives (2025–2028)
- Tip Income Deduction
Workers in customarily tipped industries (excluding high earners) could deduct tip income.
- Auto Loan Interest Deduction
Interest on auto loans for U.S.-assembled vehicles could become deductible—up to $10,000, with phaseouts based on income.
- Enhanced Senior Deduction
Seniors would receive an additional $4,000 standard deduction, extended to itemizers, subject to phaseout thresholds.
4. Estate & Business Tax Reforms
- Estate and Gift Tax
The exemption would be permanently raised to $15 million (indexed for inflation) starting in 2026.
- Pass-Through Entities (Section 199A)
The 20% pass-through deduction would become permanent and increase to 23%, with revised limitations for specified service businesses and income calculations.
- SALT Cap Workarounds
Strategies used by pass-through businesses in non-199A sectors to circumvent the SALT cap would be closed.
- Business Loss Rules
The noncorporate loss limitation would be made permanent with tighter rules.
5. Green Energy & IRA Revisions
- Repealed or Phased-Out Credits
Several Inflation Reduction Act (IRA) tax credits would be repealed or phased out:
- Electric vehicle and residential energy credits after 2025
- Clean electricity credits (45Y, 48E, 45U) beginning phaseout after 2028
- Hydrogen production credit (45V) repealed after 2025
- Advanced manufacturing credit (45X) phased out by 2031
- Restrictions placed on credit transferability and entities with foreign ties
- Selective Expansions
The clean fuel production credit (45K) would be expanded.
6. Corporate and Investment Tax Changes
- Executive Compensation
Section 162(m) rules would be tightened, limiting deductible executive compensation.
- Charitable Contributions
C corporations would face a 1% floor on charitable contribution deductions.
- Business Investment Incentives (2025–2029)
- Full expensing (100% bonus depreciation) for short-lived assets
- Immediate expensing of domestic R&D expenses
- EBITDA-based interest deduction limitations reinstated
- Full expensing for qualifying structures in select sectors (manufacturing, extraction, agriculture) with specified construction and service timelines
What This Means for Financial Advisors
These proposed changes, if enacted, would significantly shape how individuals and businesses plan for the future. Advisors must be proactive in understanding how these reforms could impact tax strategy, estate planning, and business investment decisions. Now is the time to educate clients, model scenarios, and adjust long-term financial strategies accordingly.
