2025 has been a rollercoaster ride on many fronts, including in the tax world. Today’s news headlines are filled with tariff announcements, proposed tax bills, and potential policy changes that affect the vast majority of taxpayers. Amid the constant upheaval, how can tax planners even begin to formulate a plan? When so many key tax deductions might be “here today, gone tomorrow,” how can you reassure your clients that tax savings are still possible?
When it comes to tax planning, there is a fine line between being proactive and being premature. We don’t want to advise our clients based on predictions and assumptions about which bills Congress will pass, for instance. However, we also don’t want to wait so long that we actually miss the window for tax strategies that take more time to implement. To navigate this unpredictable landscape, as tax planners we need to find that middle path. We need to build tax plans with enough flexibility that we can pivot as we receive more information.
In today’s blog, we’re providing an overview of key tax laws that could shift in 2025 and how tariffs may impact the tax planning process.
What Do We Know Right Now?
Which Tax Provisions Could Expire This Year?
This early in the year new curveballs for 2025 could always come up, but based on the expiring TCJA provisions, certain tax strategies are more up in the air than others. Personal income tax would be a notable example. TCJA changed not only the marginal tax rates but the income ranges for each bracket. If you are advising a client on how to lower their taxable income, you can focus on currently available ways to decrease it, but you won’t know exactly how much tax they will owe on what’s left. Instead, you’ll have a range of possibilities based on the pre-TCJA and the post-TCJA tax rates. The standard deduction is another major question mark. The 2017 legislation nearly doubled the standard deduction from $6,500 to $12,000. This will also significantly affect how much personal income tax your client owes.
Also up for expiration or renewal are:
• The estate tax exemption—this was doubled back in 2017
• The expanded child tax credit—this currently has a higher income threshold before the credit begins to phase out
• The alternative minimum tax—TCJA reduced the number of taxpayers subject to the AMT by increasing the income exemption amounts, raising the phaseout thresholds, and eliminating some AMT preference and adjustment items
• The 20% deduction from qualified business income (199A)—this will disappear completely if not renewed
What Tax Changes Could We See This Year?
Though the leading ideas seem to change by the day, a number of current proposals would simply extend current tax provisions. This includes the personal income tax rates, the 199A qualified business income deduction, and the expanded child tax credit. Other proposals look to modify a current tax provision before renewing it. The cap on state and local taxes (SALT) is a great example. Lawmakers are debating whether to remove the cap, increase it, or introduce income thresholds for who qualifies for SALT deductions. Similarly, a current proposal from the Trump administration advocates for changing the estate tax by eliminating it altogether.
One new idea that has arisen would introduce a global itemized deduction cap. Like the current SALT cap, this would limit how much a taxpayer can take in itemized deductions, but instead of being specific to state and local taxes, the threshold would apply to all itemized deductions, likely based on a percentage of your income.
What About Tariffs?
Another policy change impacting small businesses everywhere are the new tariffs. As of the publish date for this blog, we’re looking at a 10% baseline tariff for all imported goods. Certain products are subject to additional tariffs, such as the 25% levy on steel, aluminum, and automobiles. Notably, tariffs on China rose as high as 145% this year and are down to 30% after recent negotiations. From a tax planning perspective, tariffs function as a stealth tax for both consumers and businesses. Typically, whoever picks up the imported goods from the dock has to pay the actual tariff. From there, the extra cost is passed onto the buyer—both the business that purchases the goods if they are being resold and the consumer who ultimately ends up with the product.
Discussing tariffs with your business owner clients is extremely important because if they are not adjusting their prices, they may suddenly find their profits dipping and even have difficulty paying their next tax bill. Don’t shy away from the topic because it feels too “political” to bring up with clients. As tax planners, we’re not necessarily talking about our opinions on political decisions but rather the reality of how these changes could impact our clients’ finances and how to adjust their tax strategy.
Summary
The first step in navigating these ever-shifting tax and tariff policies is to focus on what we know to be true right now. Yes, new bills could be passed and trade negotiations be finalized that could affect your clients’ taxes down the road, but speculation will not ultimately help anyone. Start with the facts and then move to the hypotheticals. In our next blog, we’ll dive deep into how scenario modeling and asking the right questions will help you create a flexible tax plan that provides reassurance to your clients.
For ongoing updates on changes in the tax world and training on how to handle it, sign up to become a Certified Tax Planner today.
