Tax Reform 2025- What did the Senate Include?

By: Stephen Zogal, EA

Date: 6/18/2025

The US Senate released its version of the "Big Beautiful Bill" on June 16th and it includes some changes that Businesses and Individuals should be aware about. While the provisions are not officially set in stone, the 549 page bill contains interesting provisions and key landmarks for the Trump admisitration.

Business and Manufacturing Incentives

The legislation makes a significant investment in revitalizing domestic manufacturing by reinstating 100% bonus depreciation for qualified property placed in service between 2025 and 2029. This allows businesses to immediately write off the full cost of capital expenditures, improving liquidity and encouraging reinvestment. In addition, the law reverses previous restrictions on research and development deductions by restoring full expensing for domestic R&D activities, while foreign research remains subject to a 15-year amortization period. These changes directly support innovation and job creation within the United States. Furthermore, enhancements to the Qualified Business Income Deduction (QBID) particularly benefit manufacturing entities, offering reduced tax burdens for businesses engaged in domestic production.

Foreign vs. Domestic Investment

Provisions targeting international tax avoidance reinforce a pro-domestic investment agenda. The legislation strengthens Global Intangible Low-Taxed Income (GILTI) and Subpart F rules to reduce the incentive for multinational companies to shift profits to low-tax jurisdictions. Additionally, interest deductions on loans to foreign affiliates are limited, curbing the use of debt as a tax shelter. Simultaneously, tax credits and deductions are restructured to reward activities tied to U.S. soil, including domestic labor, production, and intellectual property. These reforms are designed to attract and retain business investment within the country.

Support for Families

A key provision under this section is the significant expansion of the business tax credit for employer-provided child care. Previously capped at 25% of eligible expenses, the new law increases this to 50%, effectively doubling the incentive for businesses to invest in dependent care services. The annual limit per employer is also raised from $150,000 to $500,000. Eligible expenses include facility construction or renovation for on-site daycare, direct payment of child care services for employees, and contracts with licensed third-party providers. To qualify, the employer must ensure that the child care benefits are equitably offered to employees and meet health and safety standards. This change is intended to address workforce participation barriers and incentivize broader employer involvement in supporting working parents. By significantly increasing the financial return on child care investments, this provision aims to expand access to affordable, high-quality child care while improving employee retention and productivity.

Education and Disability Support

Several provisions expand support for education and individuals with disabilities. Student loan discharges due to death or permanent disability remain non-taxable, reducing the financial burden on families and affected borrowers. Rollovers from 529 education savings plans to ABLE (Achieving a Better Life Experience) accounts are now permitted, offering more flexibility in financial planning for individuals with disabilities. Additionally, the eligibility threshold for the ABLE saver's credit has been increased, allowing more taxpayers to benefit from incentives designed to support long-term savings for people with disabilities.

University Endowment Tax Expansion

The endowment excise tax, previously applied to a narrow group of elite institutions, is expanded by lowering the student enrollment and endowment asset thresholds. This change targets wealthy private universities with large endowments and low tuition support, encouraging them to allocate more resources toward affordability and access. The broader application of this tax aims to address concerns about equity in higher education funding.

Opportunity Zones and Capital Gains

The legislation makes adjustments to the Opportunity Zones program by extending the capital gains deferral window through 2028 and restoring the 15% step-up in basis for investments held at least seven years. These changes incentivize long-term commitments to economically distressed areas. At the same time, stricter reinvestment and reporting requirements are introduced to ensure transparency and that investments provide tangible community benefits.

“America First” Economic Measures

To strengthen domestic economic resilience, tax benefits are restricted to entities that utilize U.S.-based inputs and labor. Foreign entities of concern are excluded from most new tax incentives, reinforcing national security and economic independence. The law also prioritizes reshoring through tax preferences tied to domestic R&D and manufacturing. These provisions are designed to align federal tax policy with broader geopolitical and supply chain strategies.

Energy and Fossil Fuels

In a departure from previous green-focused policies, the legislation contains no new restrictions on fossil fuel exploration and drilling. Instead, it provides full expensing for U.S.-based oil and gas infrastructure, enabling rapid cost recovery for capital-intensive projects. Coupled with the rollback of renewable subsidies, these measures represent a pivot toward conventional energy development and enhanced energy independence.

SALT Cap Workaround

To alleviate the impact of the federal $10,000 cap on state and local tax (SALT) deductions, pass-through entities such as partnerships and S corporations are permitted to deduct state-level income taxes paid at the entity level. This workaround allows business owners in high-tax states to reduce their federal tax burden, improving fairness and economic efficiency.

The provisions do not include and increase of the SALT cap for individuals- something that has been long overdue and needed to curb double taxations between state policy and federal.

Legal and Tax Enforcement

The legislation requires full reporting of gross proceeds from legal settlements, including amounts paid to attorneys under contingency arrangements. This closes a long-standing reporting gap and ensures accurate tax liability calculation. New penalties are also introduced for promoters of fraudulent Employee Retention Tax Credit (ERTC) schemes, particularly those tied to COVID-era abuse. These enforcement actions aim to preserve tax system integrity and deter future misconduct.

IRS Oversight and Taxpayer Privacy

While reaffirming public-private partnerships for electronic filing, the legislation enshrines new data security obligations for third-party providers. Simultaneously, penalties for unauthorized disclosure of taxpayer information are significantly increased—up to $500,000 in fines and five years of imprisonment. These updates modernize oversight while reinforcing the importance of taxpayer confidentiality.

Social Programs and Veteran Services

Fraud prevention in entitlement programs is bolstered through expanded use of artificial intelligence and interagency data sharing. These tools will help identify improper claims within Medicare and Social Security. For veterans, the law extends special tax exemptions and protections for Purple Heart recipients and disabled service members. These include tax-free status for VA disability payments and exemptions from IRS collection actions, along with expedited tax processing support.

Prescription Drug Cost Reforms

Significant changes are introduced to reduce prescription drug costs. The law caps Medicare Part D out-of-pocket expenses at $2,000 annually, shielding seniors from high drug prices. It also prohibits so-called gag clauses in pharmacy contracts, allowing pharmacists to inform patients of cheaper alternatives. Finally, a pilot program authorizing Medicare to negotiate directly for high-cost drugs is introduced, laying the groundwork for future cost containment strategies.

Tariffs and Trade

The legislation reaffirms existing U.S. tariff authority and expands enforcement capabilities. Relief from tariffs is explicitly denied to foreign entities of concern, reinforcing economic and national security policies. Additionally, Customs and Border Protection receives enhanced authority to investigate undervaluation and transshipment schemes, ensuring fair competition for U.S. producers.

Taxpayer Hardship Relief

Recognizing the burden tax obligations can impose during difficult times, the law allows the IRS to waive penalties for taxpayers facing economic hardship. It also simplifies access to installment agreements and prevents enforced collection against essential assets such as primary residences or basic income. These provisions offer compassionate relief while maintaining compliance.

Debt Limit Adjustment

The bill authorizes an increase in the federal debt ceiling to accommodate the fiscal obligations resulting from these reforms for $5 Trillion.

We can only hope the tariffs will offset the costs and boost the economy to generate tax revenue which would pay off this debt the taxpayers are on the hook for.

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