Potential Tax Law Changes in the New Trump Administration

How Manufacturers Can Prepare for Tax Changes Under Trump in 2025

Republican domination of Congress, along with a Republican in the White House, likely means the constantly swinging pendulum of tax law is going to arc towards business tax cuts, possibly starting in 2025. 

The scope of these changes is unknown, in large part because normal Congressional rules require 60 votes for budget bills to pass the Senate, more than Republicans control. In addition, it remains to be seen how much more deficit spending some Republicans are willing to accept. The non-partisan Congressional budget office estimates simply eliminating the sunset on tax cuts passed in 2017 would cost another $4 trillion plus interest over the next 10 years. 

Early indications from President-elect Trump and GOP lawmakers suggest that the incoming Administration and Congress will attempt to: 

  • Slash the corporate tax rate to 15%, down from its present 21%, although this could require incremental stepdowns over time. 
  • Obliterate many green-energy tax breaks established in 2022, including some or all of the 179D tax deduction for commercial properties.  
  • Impose significant tariffs on all or nearly all imported goods, even from friendly countries like Canada and Mexico. 
  • With bipartisan support, resolve the Section 174 deduction issue by reinstating immediate expensing for the R&D Tax Credit, eliminating the five-year amortization for domestic research and development, and the 15-year amortization for R&D conducted abroad. 
  • Rescind increased funding for IRS auditing activities contained in the 2022 tax changes. 

 

House Speaker Mike Johnson has indicated that immigration reform and enforcement will be the lower house’s top priority, leaving tax reform for late 2025.

How much of this #2 priority is achievable will depend upon support from budget hawks concerned about the 2025 budget deficit, now estimated by the nonpartisan Congressional Budget Office at $1.8 trillion; support from Democrats to prevent a filibuster in the Senate; political maneuvering to achieve reconciliation; and unforeseen circumstances that might complicate planned legislative efforts.  

All this leaves manufacturers in the place that makes them most uncomfortable: uncertainty. 

The 179D Green Buildings Deduction

That said, businesses generally and manufacturing companies specifically can take steps to position themselves for maximum positive impact from expected changes.   

First, if 2025 is to be the last year of the 179D tax deduction for energy-efficient buildings, retroactive to 2006 for owners and 2021 for architects and engineers, this would be the year to claim everything possible.

Alterations that diminish the tax savings are unlikely to be applied until 2026; businesses with energy-efficient buildings renovated or built recently may have just one last opportunity to claim this powerful deduction. In any event, it seems likely that prevailing wage provisions that magnify the value of the deduction will be disentangled from the law even if it is maintained in some form. 

Energy modeling by a licensed engineer is required for any 179D deduction claim. National Tax Group has engineers and tax experts to provide the modeling and guide businesses through the process. NTG can also help calculate the complex prevailing wage requirements, which boost the value of the deduction as high as $5.81/SF. 

Although the prospect of full expensing of research and development investments for the R&D Tax Credit are sunny, passage of any new law is uncertain and its timing is subject to a variety of political considerations.

Moving forward as if the elimination of the five-year amortization is a fait accompli could find themselves cash-strapped if the law remains as is. National Tax Group offers risk assessment and specialized insurance to cover this contingency to boost cash flow and hedge bets. 

Uncertainty About the R&D Tax Credit

Expensing and claiming the R&D Tax Credit has been in limbo for two years now despite lawmakers from both parties promising to eliminate the glitch. The 2017 law that required amortization of expenses over five years for domestic research and 15 years for international research has expired, leaving businesses unsure whether they will be able to collect the entire credit in a single year. 

Businesses hesitant about their tax liability and concerned about tying up cash to pay a higher-than-expected tax bill can allay their fears and keep the cash flowing.  National Tax Group can perform a risk assessment and offer specialized insurance to cover any overdue taxes, which allows businesses to minimize risk and maximize available revenue. 

Consider Cost Segregation to Reduce Taxes

The magic of cost segregation studies remains as shiny as ever, regardless of the tax landscape. A cost segregation study reclassifies building components for more advantageous income tax accounting. Cost segregation accelerates depreciation of real estate properties into the early years of ownership, rather than over the standard 27.5 years for residential assets and 39 years for commercial properties. 

Instead of paying the government, businesses can allocate those funds back into business operations to produce more revenue and profit.   

No one knows for sure what lies ahead for taxes, so business leaders are wise to be prepared to exploit whatever situation arises.