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5 tax reform proposals to watch out for in 2025

I don’t spend much time talking or writing about tax proposals. This is a result of lessons learned as a tax law student dating back to the 1980s when I first started writing professionally. The politics of tax law reform has always been messy and unpredictable. But the tax planning filed is, to a large extent, intertwined with political tax law reform forecasting. According to Bloomberg and other tax writers I follow, there are less than two dozen current proposals that are taken seriously, and many of them are overlapping or would duplicate effects. All of these are promoted by powerful Republican lobbyists, are included in Project 2025, or endorsed by Heritage Foundation and prominent Republican politicians. While I am not suggesting that these few specific proposals have a high probability of passage, there is strong probability that some major tax reform this year. In the current issue of Kiplinger Tax Letter, the editors list sis reasons why they conclude “Odds for a tax bill are quite good”.

This post is focused on self-employed persons and small business owners, like almost all of my published content, that make up most of my client base and broadcast audience. Some of the tax reform proposals could benefit us, but we can ignore the possibly beneficial ones for now for the purpose of our early state tax planning awareness. Let’s focus, for now, only on the ones to watch out for because they could cost us. That’s what we look at when making preliminary tax plans for middle income and small business clients.

If we filter the list of tax reform proposals that have some reasonable chance of passage this year, and then look at only the proposals that would have a detrimental effect on middle income and small business clients, we see just four proposals to keep an eye out for (listed in order of their total dollar impact):

1) Eliminating the home mortgage interest deduction could increase taxes for homeowners by more than any other proposal.
2) Eliminating tax free interest on municipal bonds, private activity and Build America bonds could increase taxes on investors by $364 Billion by eliminating this currently popular tax avoidance strategy. It could also make it more difficult for local governments to fund infrastructure expenditures and would eventually lead to higher state income taxes and higher property taxes.
3) Eliminating head of household filing status could increase taxes for single, separated, independent, or unmarried parents by $192 Billion over ten years.
4) Eliminating the deduction for student loan interest could cost taxpayers $30 Billion over ten years.

All of these are aligned with expressed Presidential and Congressional goals, so I assess that there is a reasonable risk that any or all of these could become law this year.

One additional proposal would have a major impact on self-employed and small business taxpayers:

5) Eliminate IRS enforcement funding that would increase uncaught tax cheating by $66 Billion over ten years.

I wrote earlier about anecdotal reactions to this proposal: I think that many are already assessed that their chances of getting caught cheating are so small that they are more willing to risk tax cheating.

I expect to follow all of these proposals, report on updates, and adjust our tax plans as these evolve. We will adjust our financial plans for maximum tax efficiency when we have more information.