What to Expect in Taxes this Year

As the upcoming months unfold, a political and economic showdown is underway. With Republicans actively working to renew and reshape the nation’s tax laws, businesses and individuals alike face a critical question: Will this year deliver a financial windfall or usher in a storm of higher taxes and regulatory challenges?

The GOP's High-Stakes Game Plan

Republicans, armed with control of the White House and Congress, are pursuing a comprehensive tax reform package often referred to as “one big, beautiful bill.” The House Budget Committee recently advanced a budget resolution that allocates $4.5 trillion for tax cuts while requiring $2 trillion in savings as offsets. However, Senate Republicans, led by Majority Leader John Thune (R-SD), may pursue a two-bill approach—focusing first on defense, the border, and energy before addressing tax reform.

Senate Republicans are also pushing for permanent tax relief rather than temporary extensions. Senate Finance Committee Chair Mike Crapo (R-ID) and others have emphasized the need for long-term certainty to support economic growth.

Key Budget and Policy Flashpoints

1. Sticker Shock and Budget Constraints: Extending the TCJA’s expiring provisions is estimated to cost $4.2 trillion over 10 years, with an additional $1.3 trillion needed to reverse business tax increases. Trump’s additional tax promises—including cuts on tips, overtime income, and Social Security benefits—could push the total cost to between $5 trillion and $11.2 trillion. With only $4.5 trillion available under the House’s budget resolution, lawmakers must prioritize which provisions to include.
2. SALT Cap Showdown: The $10,000 cap on state and local tax (SALT) deductions remains a contentious issue. High-tax states like New York advocate for a more generous cap, but the final outcome depends on the budgetary “headroom” available.
3. Child Tax Credit (CTC): The TCJA increased the CTC from $1,000 to $2,000 per child, a move supported by many conservatives. There is debate over whether to maintain or slightly increase the credit, with proponents arguing that it encourages workforce participation.
4. Energy Tax Credit Rollbacks: Republicans aim to scale back energy tax credits introduced in the Democrats’ 2022 tax-and-climate law, though credits for biofuels, hydrogen, and nuclear energy may remain due to their economic benefits.
5. Corporate Tax Cuts and Tariffs: President Trump and Vice President JD Vance propose reducing the corporate tax rate from 21% to 15% and exempting tipped wages and overtime pay from taxation. New tariffs are also on the table to boost domestic production, though these measures could increase the deficit by up to $3 trillion.

Global Tax Policy Shift

President Trump has officially withdrawn the U.S. from the OECD’s global tax pact, which sought to establish a 15% minimum tax and reallocate profits of multinational corporations. This decision is expected to lead to new digital taxes imposed by foreign governments on U.S. companies.

Baseline Debate and Cost Calculations

A key point of contention is whether to use a “current law” or “current policy” baseline when calculating the cost of extending TCJA provisions. Using the current law baseline reflects the cost of extending tax cuts that are set to expire, while the current policy baseline assumes these cuts will continue, resulting in a lower projected cost. Treasury Secretary Scott Bessent supports the current policy approach, arguing it provides more fiscal flexibility.

Preparing for the Tax Cliff

With TCJA’s expiration approaching, businesses should prepare for potential tax increases and changes to key provisions:

• Qualified Business Income Deduction (Section 199A): Could be eliminated, raising taxes on pass-through entities.
• 100% Bonus Depreciation (Section 168(k)): Scheduled to phase out by 2027.
• Global Intangible Low-Taxed Income (GILTI) Deduction: May be reduced from 50% to 37.5%, increasing taxes on foreign income.
• Base Erosion and Anti-Abuse Tax (BEAT): Set to increase from 10% to 12.5%, with fewer allowable credits.

Looking Ahead

As the tax debate intensifies in the months ahead, businesses and individuals must stay informed and agile. Republicans’ goal is to extend TCJA provisions and deliver additional tax cuts, but budget limitations and political disagreements may force compromises. With shifting IRS enforcement priorities and evolving global tax policies, this year promises to be a defining moment in U.S. tax policy.

So, will this year deliver a tax windfall or financial storm? The answer depends on whether lawmakers can balance fiscal discipline with pro-growth measures. Businesses that proactively plan for these changes may reap significant benefits, while those unprepared could face higher costs as the tax landscape shifts.