As we move through 2025, businesses face a rapidly changing tax landscape, largely due to the expiration of several key provisions of the Tax Cuts and Jobs Act (TCJA) and potential new legislation. With major tax reforms on the horizon, companies must act now to prepare for the potential tax increases and changes that may come into effect. Here’s what businesses need to know and how they can strategically plan for the future.
The Impact of Expiring TCJA Provisions
The 2017 TCJA implemented substantial tax cuts, including lower corporate tax rates, changes to individual income taxes, and new international tax rules. However, most of the individual tax cuts and some business-specific provisions were set to expire at the end of 2025. These expirations could have a significant impact on businesses, especially in the areas of pass-through deductions and international tax systems.
For example, the pass-through deduction, which allows certain businesses to deduct up to 20% of qualified business income, will no longer be available after 2025 unless extended by Congress. Additionally, while the 21% corporate tax rate remains permanent, changes to the international tax system, designed to keep pace with global tax reforms, will likely introduce new complexities for U.S. businesses with foreign operations.
With these expirations, Congress is expected to consider major tax legislation in 2025 to either extend certain provisions or introduce new measures. The uncertainty surrounding these potential changes is driving businesses to take action now to protect their financial interests.
What Should Businesses Do Now to Prepare?
Given the looming changes, businesses should focus on several key areas to ensure they are ready for potential tax reforms. Here’s a breakdown of the essential steps companies should take:
1. Review and Prioritize Tax Strategies
First and foremost, businesses should conduct a thorough review of their current tax profile. This involves modeling potential scenarios to understand the impact of the expiring TCJA provisions and any anticipated legislative changes. By evaluating various tax outcomes under both current law and possible future tax laws, companies can gain clarity on how their operations, cash flow, and bottom line might be affected.
This exercise should go beyond the obvious changes and include identifying potential surprises—whether related to international taxes, domestic policies, or specific business deductions. Prioritizing these concerns will help businesses make informed decisions and adjust strategies accordingly.
2. Refine Advocacy Plans and Engage with Policymakers
Given the potential for significant tax changes in 2025, businesses need to ensure their interests are well-represented in Washington. The process of tax reform will likely involve intense lobbying, and businesses must be proactive in engaging with coalitions, trade associations, and policymakers to influence the discussion.
For businesses, it’s essential to fine-tune their advocacy strategies to address the specifics of the proposed tax changes. In addition to advocating for the extension of favorable provisions, companies should stay on top of any new proposals that could impact them, such as changes to international tax rules or new tax breaks for certain industries.
3. Consult with Tax Advisors and Model Future Scenarios
As tax law changes could significantly alter business strategies, companies should consult with tax advisors to understand the implications of potential changes. Tax experts can help businesses model both current and future tax laws, providing a clearer picture of how tax liabilities could evolve.
This proactive planning will help businesses identify the most efficient tax strategies, such as timing business investments, managing income, or reevaluating their tax structures. Additionally, companies considering mergers, acquisitions, or new investments should model the impact of potential tax reforms to ensure their plans remain viable under different tax scenarios.
4. Adapt to Changing International Tax Rules
For businesses with international operations, the expiration of certain TCJA provisions and the introduction of global minimum tax rules could have a significant impact on their tax liabilities. Companies should closely monitor any developments related to the international tax system and be prepared to adjust their strategies to comply with new global tax rules, such as those proposed by the Organisation for Economic Co-operation and Development (OECD).
The future of U.S. tax policy may involve further adjustments to how multinational companies are taxed, potentially complicating cross-border transactions. It’s crucial for businesses to stay ahead of these changes by working with tax advisors who specialize in international tax compliance and structuring.
5. Consider Long-Term Business and Investment Strategies
The uncertainty surrounding the expiration of TCJA provisions and other potential tax law changes should prompt businesses to reevaluate their long-term strategies. Companies actively considering new investments, business expansions, or restructuring should consider how upcoming tax changes could affect the economics of these plans.
For example, tax reforms could affect the attractiveness of certain investments, such as renewable energy projects, international ventures, or research and development (R&D) initiatives. By considering the possible tax implications now, businesses can better navigate future decisions and ensure that they are structured in the most tax-efficient manner.
6. Stay Engaged with Tax Policy Developments
Given the uncertain tax policy environment, businesses must remain engaged with ongoing discussions and developments. The tax policy landscape in 2025 will likely be complex, and staying informed will be key to successfully navigating potential changes. By tracking updates from lawmakers, trade groups, and tax experts, businesses can adjust their strategies in real-time and avoid being caught off guard by unexpected tax legislation.
Conclusion: Preparing for the Uncertainty Ahead
The 2025 expiration of TCJA provisions, combined with the potential for significant tax changes, presents both challenges and opportunities for businesses. Companies that proactively engage in tax planning, model different scenarios, and stay informed about legislative developments will be better equipped to navigate the evolving tax landscape. By taking these essential steps, businesses can ensure they are prepared for whatever tax reforms may come their way and continue to thrive in an increasingly complex tax environment.