Countdown to Tax Reform: What’s In, What’s Out, and What’s Coming

Congress has officially opened the door to major tax reform, and the coming weeks will be critical. With the budget reconciliation bill now passed, lawmakers are gearing up to draft legislation that could reshape key provisions of the Tax Cuts and Jobs Act (TCJA) – many of which are set to expire at the end of 2025. From expanded child tax credits to changes in bonus depreciation and corporate rates, much is at stake for individuals and businesses alike. While the final details remain uncertain, understanding what’s on the table now can help taxpayers plan ahead.

Reconciliation Bill Clears the Way for Tax Reform

The budget reconciliation bill passed both chambers of Congress on April 10, 2025. This opens the reconciliation process as the procedural avenue for passing tax reform legislation with a simple majority vote in the Senate. The bill provides the budgetary framework with which the tax reform legislation must comply but otherwise does not provide specific tax reform provisions.

Congress will begin drafting actual legislative text the week of April 28, 2025, with leaders expressing a desire to deliver the legislation by Memorial Day. This timeline may be too ambitious, but it does indicate Congress’ intent to work quickly.

Generally, the House moves first to originate revenue bills, but the Senate is unlikely to be a passive participant in the process. The Senate could begin drafting its own legislative text concurrent with the House’s process, or it could wait to mark up the House bill. In either scenario, monitoring significant differences between the House version and Senate version will be a key indicator for how long it may take to send final legislation to the president’s desk for signature.

Potential Extensions and Changes to Key TCJA Provisions

Although specific tax reform provisions will remain unknown for several weeks, Congressional leaders continue to indicate that extending the expiring provisions of the TCJA is a high priority.

Expiring provisions that may be extended include:

• 20% deduction on qualified business income (QBI)
• $10,000 maximum deduction cap for state and local taxes paid by individuals (Although negotiations may result in an increase to the maximum deduction cap, yet other lawmakers have discussed eliminating the state and local tax deduction entirely.)
• Maintaining reduced marginal tax rates and expanded tax brackets
• Larger standard deduction amounts
• Expanded availability of child tax credits
• Making the higher estate tax exemption permanent

Other tax-cutting provisions being considered include:

• Reinstating 100% bonus depreciation and an immediate deduction for R&D expenditures (There is possibility for retroactive effective dates with these provisions.)
• A lower corporate tax rate for domestic manufacturers
• Exempting tips, overtime pay, and social security benefits from income tax
• Relaxing 163(j) limitations on deductions of interest expense
• Extension or reforms to the Qualified Opportunity Zone program
• Enhancements to the Low-Income Housing Tax Credit (LIHTC)

Proposed Offsets and Revenue Raisers Could Shape Final Bill

Although the bulk of the tax legislation will provide tax cuts, it’s likely there will also be some revenue-raising provisions in order to keep the legislation within the required budgetary framework. Frequently discussed revenue raising provisions include:

• Creating a top individual income tax bracket of 40% on income over $1 million
• Subjecting carried interest to ordinary income tax treatment
• Repealing certain green energy tax credits
• Limiting the child tax credits (instead of extending the TCJA treatment)

Be Prepared To Pivot

While the potential changes above are among the most talked about, the road to tax reform will likely involve rapid developments, unexpected provisions, and political negotiation. Businesses and individuals should stay sharp and be ready to act. As proposals take shape and details emerge, timing could be everything.

KSM will continue to monitor the process closely and provide timely insights. In the meantime, reach out to your KSM advisor or contact us via the form below with questions.