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Dive Brief:
- Some provisions of the Tax Cuts and Jobs Act of 2017, many of which are set to expire in 2025, will likely get new life once President-elect Donald Trump begins a second term, a tax expert told attendees at a recent webinar
- “It was passed seven years ago, and most of the provisions are supposed to expire in a year,” said Fred Barotz, chief tax officer at New York City-based accounting firm Anchin. during the December 10 webinar. “Given that Donald Trump will be back in office next year, it is very possible and plausible that some or all of the provisions will be expanded.”
- While the law’s cut in the corporate tax rate to 21% from its previous level of 35% does not expire, the overall outlook on individual rate hikes is a welcome contrast to the uncertainty that marked much of 2024 for contractors, many of whom are taxed at individual rates. The TCJA temporarily reduced tax rates for individuals, which will expire at the end of 2025, according to the Tax Policy Center, a Washington, DC-based think tank.
Diving knowledge:
The TCJA, the signature legislation of Trump’s first term, has reviewed the tax code both for individuals and for companies. Beyond the cuts to personal and corporate tax rates, this moved the country towards a territorial tax systemwhich excludes profits that multinational corporations make in foreign countries from their domestic tax base, according to the Tax Foundation, a Washington, DC-based think tank.
Although the continuation of the lowest rate of corporation tax was never questioned, this rate only applies to a minority of construction companies. According to the Associated General Contractors of America, 70% of construction companies are organized as “pass-through” entities, including S-Corporations, partnerships, LLCs, and sole proprietorships. These business structures are taxed at the owners’ individual tax rates.
Despite the reduced uncertainty about the continuation of lower rates following Trump’s election, Barotz said the future is not set, given the political atmosphere in Washington and other proposals Trump has put on the table.
“I wouldn’t bet on having this webinar a year from now, when the thing is supposed to be over in a matter of weeks, rather than a year plus a few weeks, and there’s still no certainty,” Barotz said . “So all we can do now is play the hand we’ve been dealt.”
The Tax Foundation pointed out the potential impact of Trump’s new tax plans and proposals, which include reducing the corporate tax rate even further for domestic production, the creation of broad rates and the repeal of green tax credits, depend on which policies are implemented and which are not, according to an Oct. 12 article from the nonprofit.
In particular, the tariffs could prove costly to the economy and consumers, the foundation warned.
“Tariffs are a particularly distortive way to raise revenue, not least because they invite foreign retaliation,” the paper’s authors wrote. “We estimate that Trump’s proposed tariffs and partial retaliation from all trading partners would together offset more than two-thirds of the long-term economic benefit of his proposed tax cuts.”
