How Trump Winning the Presidency Could Impact Taxes for Manufacturers
Following the outcome of the 2024 election, business owners, especially in manufacturing, are wondering how this will impact their taxes. Many provisions from the 2017 Tax Cuts and Jobs Act (TCJA), President-Elect Trump’s major tax code overhaul signed into law during his first presidency, are set to expire at the end of 2025. Now, there is a possibility that many of these expiring provisions could be extended.
Most manufacturers are familiar with the Qualified Business Income (QBI) deduction, also known as Section 199A, which has allowed owners of pass-through entities to deduct up to 20% of qualified business income. This provision, which originated with the TCJA, has been a substantial benefit for pass-through companies by serving as a 20% deduction from taxable income passed through to partners and shareholders. It is currently scheduled to expire on December 31, 2025. With Trump’s potential push to extend or enhance tax cuts, the QBI deduction could be preserved, providing continued tax relief for manufacturers and other pass-through business owners.
Another major component of the TCJA that has already begun to phase out is bonus depreciation for qualified property. For assets placed in service from September 28, 2017, through December 31, 2022, manufacturers and other businesses were allowed to take 100% bonus depreciation. This has been a huge benefit for companies. Unlike Section 179 expensing, bonus depreciation can be used to create a loss. However, this provision began to sunset in 2023, with bonus depreciation decreasing to 80% for assets placed in service during 2023 and 60% during 2024. If not extended, bonus depreciation will continue to decrease by 20% each year and eventually expire completely at the end of 2026. As this was part of Trump’s proposals leading up to the election, it is likely he will push to reinstate 100% bonus depreciation.
Corporate tax rates also remain a topic of discussion. Before the TCJA, corporate tax was calculated on a progressive basis, with a maximum tax rate of 35%. Post TCJA, corporations are now taxed at a flat rate of 21% which was made permanent and is not expiring. While there is no specific proposal currently regarding the corporate rate, Trump has suggested lowering it to 20% or possibly even lower for companies manufacturing products in the United States. This could provide additional tax savings for manufacturing companies, though such a tax cut would likely be offset by revenue-generating measures. Trump has proposed steep tariffs on foreign-manufactured goods, including a tariff on imports from Mexico and Canada of 25% and an additional tariff on imports from China of 10% above any other tariffs.
While running for election, Trump unveiled that he would give U.S. manufacturers a first-year tax write-off for Research & Development (R&D) expenses. This would be a reversal of a major component of TCJA, which changed the expensing of R&D deductions. As many manufacturers know, beginning in 2022, businesses were no longer able to write off their R&D expenses in the same year they were incurred. Instead, they are required to amortize their R&D costs over five years pursuant to Internal Revenue Section 174. Trump also said he would appoint a specialized “manufacturing ambassador” who would be solely responsible for convincing major manufacturers to move back to the United States.
There is no doubt that 2025 will be a year full of proposed major tax legislation changes. U.S. fiscal concerns could also affect tax policy action that will occur in 2025. Rising federal debt and interest costs will likely spark debate over expiring TCJA provisions. Absent a full agreement, lawmakers may decide on a short-term extension for expiring provisions. However, since Republicans have the majority, a long-term extension is also possible. Time will tell which extensions and proposals will come to fruition. If you have questions on how these potential changes may impact your overall tax position, please reach out to us.
Contributing Author: Alexis M. Layo is a tax director at Dannible & McKee, LLP, with over 12 years of experience in overseeing various individual and corporate tax engagements, including tax closings, tax planning, and compliance. She specializes in the manufacturing, architectural/engineering and healthcare industries, along with high-net-worth individuals. She is also a QuickBooks ProAdvisor. For more information on this topic, you may contact Alexis at alayo@dmcpas.com or (315) 472-9127.