With Donald Trump returning to the White House and the Republicans gaining control of both houses in Congress, there is much uncertainty in what to expect for tax laws in 2025 and 2026. Many provisions of the Tax Cuts and Jobs Act (TCJA) are set to expire during that period. In addition, Trump has expressed interest in repealing certain provisions of the Inflation Reduction Act (IRA). Finally, additional concepts were raised during and since the campaign that could come to fruition.
This leaves many organizations asking, “What are the potential tax law changes that will impact my manufacturing business in 2025?”
Here are some key provisions of particular interest to manufacturers and supply chain businesses and thoughts on potential implications for these organizations.
Bonus Depreciation
First enacted in 2002 to stimulate capital acquisitions, bonus depreciation allows business to deduct a sizable percentage of the cost of a qualifying asset in the year of acquisition. Under TCJA, the deduction has been phasing out so, under the current law, only 40% of the cost can be taken in the year of acquisition and bonus depreciation will be completely gone in 2027. President Trump has expressed interest in reinstating the 100% deduction. When and if this happens can have a major impact on income tax planning and decisions on when to purchase capital assets.
Qualified Business Income (QBI) Deduction
The 20% deduction for certain QBI is set to expire at the end of 2025. This is a deduction for people with pass-through income intended to get these business owners on par with C corporations which saw a decrease in their tax rate to 21% as part of TCJA. However, there is bipartisan support to extend this deduction.
Individual Income Tax Rates
Favorable personal tax rates are set to revert to pre-TCJA rates after 2025. Trump has proposed to extend or make permanent the current favorable rates.
Corporation Income Tax Rates
President Trump has also floated the idea of further reducing the corporate tax rate from 21% down to 15%.
Tax Planning Tip
If QBI were to go away as currently planned and/or favorable individual rates were to expire and/or the corporate tax rate were to be cut to 15%, businesses should look carefully at whether to switch from a passthrough entity to a C corporation.
Energy Efficiency Credits
President Trump has been critical of many of the current energy efficiency credits that are available. While several members of Congress have expressed support for these credits, it is possible that these credits could be rescinded. If you have current energy efficiency project in process and are anticipating tax credits, it may be wise to get them completed and paperwork filed to improve your likelihood of receiving the credit.
State and Local Tax (SALT) Cap
While there has been discussion of either removing or raising the current SALT limit of $10,000, it is still currently in place for the 2024 tax filing year. Many states, including Wisconsin, have enacted laws allowing pass-through entities to be taxed as C corporations at the business level allowing state tax deductions at that level to reduce the amount of income passed through to the owner for federal purposes. This can be a big tax savings for companies passing through a significant amount of income to the owners of the business.
Business Interest Deduction Limitation
For 2024, businesses with average annual gross receipts more than $30 million, interest expense continues to be limited to 30% of adjusted taxable income. For businesses with significant debt and interest expense having a down year, this can result in an unpleasant surprise of having higher than anticipated taxable income. While there has been some discussion of reinstating an addback of depreciation to the calculation of adjusted taxable income, unfortunately, there does not seem to be much discussion of repealing this limitation.
Stay informed on tax law changes impacting manufacturers.
As tax laws continue to evolve, it is important for business owners to stay informed and proactive in their tax planning strategies. Consulting with a tax advisor early can help navigate these shifts and ensure your business remains competitive in 2025 and beyond. The expiration of TCJA provisions, potential changes to corporate and individual tax rates, and the uncertain future of energy efficiency credits all present opportunities and risks for businesses, and the Wegner CPAs manufacturing advisors are here to help you maximize the opportunities while mitigating the risks.
We will continue to monitor these and other changes that may impact your manufacturing business, and we’ll keep you informed of what’s next. If you’d like to receive timely manufacturing updates delivered right to your inbox, sign up for our email list. Interested in learning more? Check out a few of our manufacturing articles: Accounting for Excess Capacity, Fundamentals of IC-DISC, and A Manufacturer’s Guide to the R&D Credit.
