The tax world as we know it is in the process of being turned upside down with the second Trump administration. Between personnel cuts to the IRS, the imposition of new tariffs, and the push for an extension of the 2017 Tax Cuts and Jobs Act, we are all holding our breath to see what unfolds.
Let’s break down what is currently happening and what this could mean for the world of Taxpayers:
The Tax Cuts and Jobs Act (TCJA) is scheduled to have its provisions sunset at the end of tax year 2025. The TCJA was originally passed in 2017 during the first Trump administration, and the current administration is attempting to push a renewal or extension through the House and the Senate in some way, shape, or form. There are mixed feelings from both political parties about whether this is the right move based on the statistics from the last six years related to the government deficit, tax collections, and actual use of the provisions, and most point toward a deficit that was created by the original legislation. The hope is that more favorable adjustments are made to the original legislation if the current administration does not want to start from scratch. States with high net income tax, such as California, New York, and New Jersey, would be positively affected by adjustments to or the lapse of TCJA provisions such as the SALT (state and local tax) Cap.
In preparation for this upcoming legislation, many states with a high net income tax have started planning work-arounds for the TCJA and have litigation currently underway that would determine whether they can continue the path started in 2017 and 2018 of passing legislation that allows them to circumvent the TCJA adjustments that are harmful to these states.
We have all seen the chaos that ensued after the rollout of Trump’s tariffs and the response of the international community. As most people know, tariffs are taxes, and the government uses tariffs as a way to increase domestic revenue and affect global markets. While some argue that tariffs can support domestic industries or serve as leverage in international negotiations, they can also raise prices for consumers, strain trade relationships, and invite retaliation that can hurt the broader economy.
Once again, big changes are coming to the IRS, which has seen major staff cuts—planned for up to 40 percent—across all departments. This will have an immediate impact on taxpayers in various forms, such as delayed collection actions, delayed responses, delayed audit closures or finalizations, and delayed refund and return processing. Some taxpayers might see the reduction of IRS staff as a free pass to avoid paying taxes, and it could open the door to more tax scams, shelters, and fraud. In the short term, even honest taxpayers will experience delays in processing, slower refunds, and limited access to support. One goal of these staff cuts is to automate many functions of the IRS, which uses decades-old internal systems. Whether it truly will be possible to update an entity that has been operating with a negative budget and slim staff has yet to be seen.
The world of tax has been turned upside down, and we are all going to watch and wait together. By the end of 2025, we will see whether the TCJA has been renewed or revised, whether the newly imposed tariffs are working to our advantage, and whether the IRS is able to function on a smaller scale.
