It’s no secret that tax policies shape the financial landscape for individuals and businesses alike. Whether or not you supported Donald Trump’s presidency, there’s little doubt that with a Republican-controlled Senate and House, potential changes to the tax code could significantly impact business owners in 2025 and beyond.
Let’s peel back the layers to uncover what the next wave of tax reforms could look like, focusing on key areas that might affect you as a small or medium-sized business owner.
A Look Back: The Impact of the Tax Cuts and Jobs Act (TCJA)
When the Tax Cuts and Jobs Act (TCJA) passed in 2017, it was hailed as a game-changer. Lowering the corporate tax rate from 35% to 21%, introducing the 20% Qualified Business Income (QBI) deduction for pass-through entities, and doubling the standard deduction were just some transformative measures. This sweeping reform gave business owners new tools to reduce their tax burdens and reinvest in their companies.
Could the Corporate Tax Rate Drop to 18%?
One of the most talked-about possibilities under a renewed Trump administration is a further reduction of the corporate tax rate. There’s speculation that Trump might push for an even lower corporate tax rate – potentially as low as 18% or lower.
The logic behind such a move is simple: lower tax rates mean more cash flow for businesses, which can be reinvested into hiring, expanding, and innovating. For small and medium-sized businesses, this could translate into real growth opportunities.
Imagine being able to use those additional savings to expand your product line, open a new location, or invest in new technology without taking on additional debt. Lowering the corporate tax rate would also help U.S. businesses remain competitive in the global market, particularly when compared to countries with more favorable tax structures.
But while a lower corporate tax rate could benefit all businesses, it would disproportionately favor those already profitable. The key takeaway? If you’re considering converting your pass-through entity (like an LLC or S-Corp) to a C-Corp, a lower corporate tax rate might make that shift more attractive. However, it’s essential to weigh the long-term implications with your tax strategist to ensure it aligns with your business goals.
Will the SALT Limitation Be Lifted?
The TCJA introduced a $10,000 cap on State and Local Tax (SALT) deductions, disproportionately affecting taxpayers in high-tax states like New York, California, and New Jersey (states where property values, and therefore property taxes, are very high). This limitation has been a thorn to many small business owners who itemize deductions.
A renewed Trump tax plan might consider lifting or significantly adjusting this cap, offering some relief for those burdened by hefty property and income taxes. Removing the SALT cap could also encourage more investment in higher-tax regions, indirectly benefiting local economies.
Could Bonus Depreciation Make a Comeback?
Bonus depreciation has been a favorite for business owners, enabling them to immediately deduct the full cost of eligible business assets like machinery, vehicles, and even certain software. The phase-out schedule is set to reduce this benefit incrementally each year until it’s completely gone by 2027.
However, there’s a strong possibility that Trump’s administration could push for a return to 100% bonus depreciation to stimulate business investment. Imagine how much easier it would be to expand your operations if you could write off the entire cost of a new delivery fleet or production equipment in the same year you purchased it.
Making Tips Non-Taxable for Specific Employees
Another intriguing possibility involves changing how tips are taxed. Currently, tipped employees in industries like hospitality and food service must report tips as income, which often results in additional tax burdens.
A proposed shift might make certain tips non-taxable for specific categories of workers, providing much-needed financial relief. This could also help small businesses retain staff in industries struggling with high turnover rates.
Boosting Entrepreneurship with Higher Startup Cost Deductions
Starting a business is expensive, and current tax laws allow you to deduct up to $5,000 in startup costs in your first year, with the rest amortized over 15 years. A revised Trump tax plan might increase this deductible amount, encouraging more entrepreneurs to take the leap.
Imagine being able to deduct $15,000 or $20,000 in startup costs right away. For business owners, this change could ease the financial strain of launching a new venture and pave the way for growth.
R&D Credits and Incentives for Sustainable Energy
Trump’s relationship with high-profile innovators like Elon Musk may also influence future tax policies, particularly in the areas of research and development (R&D) and sustainable energy. Expanding R&D tax credits could deliver yet another boom for tech startups and established businesses investing in innovation.
Similarly, offering incentives for renewable energy initiatives, like installing solar panels or transitioning to electric vehicles, could align with global trends while offering significant tax savings.
Watch Out for Real Estate-Friendly Strategies
Finally, no discussion of Trump’s tax strategy would be complete without considering real estate. As a massive real estate tycoon himself… Trump has long been a proponent of tax benefits that favor property owners.
Whether it’s an expansion of the 1031 exchange (allowing deferral of capital gains taxes when swapping investment properties) or expanded depreciation options, real estate investors could see further advantages under his administration.
If you’re already involved in real estate or considering it as part of your business strategy, these changes could open up lucrative opportunities.
Embracing the Future of Tax Strategy
While these potential changes offer exciting opportunities, it’s essential to plan strategically. Tax laws are complex, and maximizing their benefits requires a keen understanding of how they apply to your unique situation. Consulting with a tax strategist ensures you’re not leaving money on the table.
Whether it’s optimizing your entity structure, leveraging deductions, or planning for future investments, proactive tax planning can set you up for success. For a free evaluation of your specific situation, you can schedule a free consultation with our experts HERE.
Welcome to the New Age of Accounting. Let’s begin.
Chris is the Managing Partner at Weston Tax Associates, a best-selling author, and a renowned tax strategist. With over 20 years of expertise in tax and corporate finance, he simplifies complex tax concepts into actionable strategies that drive business growth. Originally from Sweden, he now lives in Florida with his wife and two sons.
