As 2025 approaches, businesses are facing a period of considerable uncertainty, especially concerning taxation and government operations. With several provisions of the Tax Cuts and Jobs Act (TCJA) set to expire and government funding deadlines looming, the upcoming months are likely to be pivotal for financial planning and economic stability. Here’s a breakdown of the key issues businesses should monitor: 

 

The Looming Tax Bill 

 

The expiration of TCJA provisions signals that tax reform is inevitable, but the process is fraught with challenges.

 

Timing Challenges: Lawmakers are debating whether tax reform should be addressed through a large, comprehensive bill or a phased approach. Some favor tackling multiple issues—such as border security and energy policy—in one package, while others prefer to focus solely on tax reform. These differences could delay critical decisions, leaving businesses in a state of limbo. 

 

Political Dynamics: With a narrow majority in the House and no supermajority in the Senate, passing a tax bill will require significant negotiation and compromise. Budget reconciliation, a tool that allows certain budget-related bills to bypass the Senate’s 60-vote threshold, is expected to be used. However, this process limits what can be included, potentially complicating efforts to achieve consensus. 

 

Fiscal Considerations: Extending expiring provisions is projected to add $4.6 trillion to the national debt, which currently stands at $36 trillion. Policymakers must balance the need for economic growth with concerns about fiscal responsibility, inflation, and interest rates. 

 

Tariffs and Revenue: Tariffs have been proposed as a way to raise revenue and offset the cost of tax reforms. However, tariffs could also increase the prices of goods and materials, potentially straining consumer spending and business operations. 

 

Potential New Tax Cuts: Proposals such as making tips, overtime pay, and Social Security benefits tax-free aim to provide financial relief to individuals. However, these measures could significantly increase the cost of any tax package, making support harder to achieve. 

 

State and Local Tax (SALT) Deduction: The $10,000 SALT deduction cap remains a contentious issue. Some advocate for raising or eliminating the cap, benefiting taxpayers in high-tax states, but reducing federal revenue. If Congress does nothing, the cap will expire after 2025, creating further uncertainty for taxpayers and businesses. 

 

Government Funding Deadline: March 14 

 

Adding to the uncertainty is the looming government funding deadline on March 14. If lawmakers fail to agree on an extension, many federal agencies—including the IRS—will shut down starting March 15. 

 

A government shutdown during tax season would be unprecedented, leaving businesses and taxpayers unsure of the impact. Delays in processing returns, issuing refunds, and answering taxpayer inquiries could create significant disruptions, particularly for businesses relying on timely refunds or agency guidance for compliance. 

 

What Does This Mean for Businesses? 

 

The combined uncertainties of tax reform and the potential government shutdown create significant challenges for businesses. Key areas to watch include: 

 

Corporate Tax Rates: Businesses may need to adjust investment and tax strategies depending on proposed rate changes. 

 

Pass-Through Entities: Changes to individual tax rates and deductions, such as the expiration of the Qualified Business Income (QBI) deduction, could impact these businesses directly. 

 

Government Services: A shutdown could delay access to IRS services, potentially affecting tax filings, refunds, and compliance efforts. 

 

Tariff Implications: Businesses reliant on imports may need to prepare for higher costs if tariffs are introduced as a revenue-raising measure. 

 

Preparing for Uncertainty 

While the future remains unclear, businesses can take proactive steps to navigate the challenges ahead: 

 

Scenario Planning: Prepare multiple financial strategies to account for varying outcomes in tax reform and government operations. 

 

Engage Advisors: Work closely with tax professionals to understand potential changes and how they might affect your business. 

 

Monitor Developments: Stay informed about legislative progress on both tax reform and government funding to anticipate and respond to changes. 

 

Follow Faw Casson’s podcast, Accounting and Accountability, to stay up to date on these and other pressing topics.  

 

The combination of tax reform and the potential for a government shutdown adds layers of complexity to 2025’s economic outlook. Businesses that remain flexible, informed, and proactive will be better positioned to weather the uncertainties and seize opportunities as they arise. 

 

For now, let’s remain hopeful that lawmakers find a resolution before March 14 to avoid a shutdown—and the potential chaos it could bring to tax season. As always, preparation is key in navigating the challenges ahead.