Planning Topic of The Month: Tax Cuts – What To Expect?
Insights from Zak Gardezy, CFP®, Founder & Private Wealth Advisor, Wealthstone Private Wealth Management
Congress is accelerating efforts to craft the most significant tax package since the 2017 Tax Cuts and Jobs Act (TCJA). The proposed legislation aims to extend key TCJA provisions through 2033, reinstate 100% bonus depreciation, introduce new incentives for domestic manufacturing, and maintain the estate-tax exemption at its current historically high level. Notably, more ambitious proposals, such as eliminating income tax for individuals earning below $200,000, appear unlikely to advance. If enacted according to the Memorial Day and Independence Day legislative timeline, Wealthstone clients will have a multi-year window to leverage some of the most favorable planning tools in recent memory.
1. Legislative Landscape
The legislative process is moving swiftly, with the House targeting a vote before Memorial Day and the Senate aiming for passage before July 4 via budget reconciliation. This approach allows the bill to bypass the filibuster, requiring only a simple majority for approval. The Congressional Budget Office estimates that extending expiring TCJA provisions over ten years would cost approximately $4.6 trillion. To offset a portion of this cost, fiscal conservatives advocate for $2 trillion in federal spending cuts, while moderates seek smaller revenue-raising measures.
Political dynamics add complexity to the process. Representatives from high-tax states are pushing to raise or eliminate the $10,000 cap on state and local tax (SALT) deductions, threatening to withhold support if changes aren't made. Additionally, rather than introducing a new 39.6% tax bracket, the draft proposes expanding Section 162(m) to limit corporate tax deductions for a broader group of high-paid employees.
2. Key Provisions Under Consideration
The proposed legislation includes several significant provisions:
Individual Tax Rates: Retention of the current seven tax brackets, maintaining the top rate at 37%.
Ultra-High-Income Bracket: A proposed 39.6% rate for incomes above $400,000 lacks sufficient support.
Tax-Free Income Under $200,000: A concept to eliminate income tax for individuals earning below $200,000, funded by tariffs, is deemed unfeasible and lacks necessary votes.
Estate Tax Exemption: A plan to freeze the exemption at $13.99 million per person until 2033.
Bonus Depreciation: Reinstatement of 100% expensing for qualified property through 2028.
Domestic Manufacturing Incentives: Introduction of new investment credits and accelerated research and development write-offs.
Opportunity Zones: Extension of the program with added transparency requirements.
Regulatory Reforms: An executive order directing agencies to repeal burdensome regulations.
3. Provisions Unlikely to Advance
Certain proposals are expected to be excluded from the final legislation:
Eliminating Income Tax for Incomes Below $200,000: This proposal would create a revenue shortfall exceeding $1 trillion annually and lacks both mathematical feasibility and political support.
New 39.6% Tax Bracket on High Earners: House negotiators prefer to raise revenue through corporate deduction caps rather than increasing individual tax rates.
Full Repeal of SALT Cap: Given its estimated $90 billion annual cost and limited targeting, a full repeal is unlikely; a modest increase for joint filers is more probable.
4. Planning Implications for Wealthstone Clients
The proposed tax legislation presents several planning opportunities:
Estate and Gift Strategy: Utilize the $27.98 million exemption for married couples in 2025; gifts made before the sunset are protected by the IRS anti-clawback rule.
Capital Investment: Reinstated 100% bonus depreciation allows immediate expensing of qualified property, potentially sheltering significant tax liabilities on large equipment purchases.
Opportunity Zone Investments: Proposed extensions and added transparency requirements for Opportunity Zones may enhance long-term investment prospects; early engagement is advisable.
Domestic Manufacturing and Clean-Energy Credits: New incentives, mirroring those in the 2022 Inflation Reduction Act, could offer stackable credits, improving project internal rates of return.
Executive Compensation Planning: Expanded Section 162(m) limitations may affect deduction strategies for high-paid employees; proactive planning is recommended.
5. Scenario Analysis
Three potential scenarios and their implications:
Bill Passes by July 4, 2025: This is the base case (60% likelihood). Clients should finalize estate plans and accelerate capital investments to take advantage of favorable provisions.
Bill Delayed to 2026 Election Cycle: With a 30% likelihood, clients should maintain flexibility and prepare for potential changes in tax policy.
Stalemate – TCJA Sunsets: In the event of a 10% likelihood stalemate, anticipate higher tax rates, reduced estate exemptions, and the expiration of key deductions.
6. Action Checklist (Next 12 Months)
To prepare for potential legislative changes, clients should:
Review and update estate plans to utilize current exemptions.
Plan capital expenditures to take advantage of potential bonus depreciation.
Evaluate Opportunity Zone projects for alignment with extended timelines and new requirements.
Assess executive compensation structures in light of proposed deduction limitations.
Monitor legislative developments regarding SALT deductions and adjust tax planning strategies accordingly.
7. Conclusion
We anticipate that Congress will enact an eight-year extension of key TCJA provisions, emphasizing pro-growth incentives and deregulation. This presents a strategic opportunity for Wealthstone clients to implement tax-efficient planning strategies. However, the window for action may be limited; shifts in political power could reverse these benefits. We remain committed to keeping you informed and proactive in navigating these changes.
Sources
Tax Policy Center, "Daily Deduction" – House moves budget, Memorial-Day goal (Feb 14, 2025)
Committee for a Responsible Federal Budget, "TCJA Extension Could Add $4 to $5 Trillion to Deficits" (Jul 2024)
Kiplinger, "Will the SALT Cap Be Repealed?" (Apr 2025)
Wall Street Journal, "GOP Weighs More Taxes on Companies for Top Executives’ Pay" (May 1, 2025)
Strategic Tax Planning, "TCJA on the Brink: What Expiring Provisions Mean for You in 2025" (Apr 2025)
Bipartisan Policy Center, "The 2025 Tax Debate: Individual Estate and Gift Taxes in TCJA" (Apr 2025)
Novogradac, "New Administration Sparks Optimism Around Opportunity Zones" (Feb 2025)
Committee for a Responsible Federal Budget, "Options for Reducing the Revenue Loss of TCJA Extension" (Jan 2025)
White House, Executive Order "Unleashing Prosperity Through Deregulation" (Jan 2025)
Wall Street Journal, "Trump Floats Improbable Income-Tax Cut Tied to Tariffs" (Apr 2025)
The Tax Adviser, "Executive Compensation and Changes to Sec. 162(m)" (Dec 2023)
Reuters, "Trump and his campaign promises: Mapping his first 100 days" (Apr 30, 2025)
