December 5, 2024
Potential Tax Changes Post 2024 Election
With the election results finalized, business leaders are preparing for potential shifts in tax policy under the new administration. President-elect Trump’s focus on making the Tax Cuts and Jobs Act (TCJA) permanent has sparked interest in many Atlanta business owners. However, the details of the tax agenda remain unclear. As the fiscal debate unfolds, businesses will need to stay alert to the possible changes that could shape tax planning, optimization, and financial strategies in the years ahead. To help clients, prospects, and others, Wilson Lewis has provided a summary of the key details below.
Background on the TCJA
The TCJA, enacted during Trump’s first term, overhauled the tax code by lowering corporate and personal tax rates, doubling the child tax credit, and changing the tax treatment of U.S.-based multinationals. While many provisions are permanent, more than 30 components are set to expire by the end of 2025, including Section 199A deduction for pass-through entities. Republican lawmakers have expressed a strong interest in extending these provisions through budget reconciliation, a process allowing legislation to pass with a simple Senate majority.
However, cost remains an obstacle. The Congressional Budget Office (CBO) estimates that making these provisions permanent would add $4.6 trillion to the national debt over ten years. These fiscal challenges may complicate efforts to pass tax legislation, even with Republican control of Congress.
Potential Areas of Tax Policy Change
- Corporate and Individual Tax Rates – President-elect Trump has proposed reducing the corporate tax rate from 21% to 20%, with a potential drop to 15% for domestic manufacturers. He also advocates for making the TCJA’s top individual tax rate of 37% permanent and retaining the 20% deduction under Section 199A for qualified business income (QBI). While many Congressional Republicans support these initiatives, some have suggested that maintaining the current corporate rate might be necessary to balance the costs of extending other provisions.
- Bonus Depreciation – The phased reduction of 100% bonus depreciation under the TCJA has had an impact on how businesses plan capital expenditures. Trump has pledged to reinstate full bonus depreciation for qualified assets, encouraging businesses to invest in infrastructure and equipment. Organizations will want to evaluate capital budgets to determine whether projects can be accelerated or deferred, depending on the timeline for potential policy changes. However, restoring full bonus depreciation is estimated to cost $378 billion.
- R&D Expense Deductions – The treatment of R&D expenses, (under Section 174) currently requires capitalization of over five years for domestic research and 15 years for foreign research, could revert to prior expense rules. Under previous regulations, a company that incurred eligible expenses could make a deduction in the current year offering immediate tax savings. Restoring this deduction has bipartisan support but stalled in Congress earlier this year.
- Business Interest Expense Deductions — Section 163(j) – The TCJA introduced a limit on business interest expense deductions to 30% of adjusted taxable income (ATI). Initially, ATI calculations excluded depreciation, amortization, and depletion, effectively using EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) as the basis. However, starting in 2022, the TCJA required that ATI calculations include these factors, shifting the basis to EBIT (Earnings Before Interest and Taxes). President-elect Trump has proposed reverting to the pre-2022 EBITDA-based calculation, which excludes depreciation, amortization, and depletion. This adjustment would enable businesses to deduct more interest expense, easing financing burdens. Companies will want to closely monitor these developments and revisit their debt management strategies as needed.
- International Taxation and Trade – Proposals to impose a baseline tariff of 10%-20% on all imports, and up to 60% on imports from China, could reshape global supply chains. These measures would raise average tariff rates to levels not seen since the Great Depression, increasing costs for businesses reliant on international trade. Companies will want to evaluate how these potential tariffs might affect their operations and consider diversifying sourcing and production strategies to mitigate risk.
Contact Us
The coming months will bring clarity on how President-elect Trump’s tax agenda takes shape, but the uncertainty surrounding these proposals makes proactive planning critical. By staying informed and adapting strategies to align with potential changes, Atlanta businesses can position themselves for success. If you have questions about the information outlined above or need assistance with another tax or accounting issue, Wilson Lewis can help. For additional information call 770-476-1004 or click here to contact us. We look forward to speaking with you soon.
