With Donald Trump back in the White House, we’re gearing up for some big tax changes. Let’s dive into what’s on the table and what we’ll be keeping an eye on through the end of 2025.
Recap of the Tax Cuts and Jobs Act (TCJA) and What’s Next
The TCJA, passed during Trump’s first term, brought the biggest changes to the tax code in decades. It included a permanent corporate tax rate cut to 21% and a variety of other tax cuts that will expire after 2025.
Extending the TCJA without changes could cost around $4 trillion. Trump wants to make these changes permanent, but it won’t be easy due to Senate budget rules.
Tariffs and Their Impact on Tax Policy
Trump is proposing high tariffs on imports, ranging from 10% to 300%. While these tariffs aim to protect American producers, they also have big revenue implications. Trump has even suggested replacing income tax with tariffs to fund the government. Most economists are opposed to this idea due to the impacts on inflation and the economy, so we will see how this plays out.
Changes to Individual Taxation
Several proposals could impact individual taxpayers, including:
· Making overtime income untaxable.
· Eliminating tax on tips.
· Removing the taxation of Social Security benefits.
Child Tax Incentives
The TCJA increased the child tax credit to $2,000 per qualifying child, with part being refundable.
This expires after 2025. While Trump supports making the TCJA permanent, Vice President-elect J.D. Vance has suggested increasing the credit to $5,000.
Estate Tax
The TCJA doubled the exclusion amount for estate, gift, and generation-skipping transfer taxes, which expires at the end of 2025. Trump wants to make this permanent, but there are no specific proposals for further changes. This is a major area of uncertainty, and we’ll closely track its development.
In the meantime, we recommend talking to your estate attorneys now to give us enough time to react to any changes.
Corporate Taxation
The TCJA permanently lowered the corporate tax rate to 21%. Trump has suggested reducing it further to 15% or 20%, especially for foreign-based corporations moving to the U.S.
International Taxation
The TCJA introduced several provisions to make U.S. businesses more competitive internationally, which are set to expire. Trump wants to make these permanent.
Undoing these provisions will be tough. It will be interesting to see if the “cross border tax” that Trump tried to implement in his first term will come back with a better chance of passing now.
The Inflation Reduction Act of 2022
This Act provided incentives for green energy, funded by increased IRS enforcement. Trump doesn’t like these incentives and may propose eliminating them. This area would generate the revenue needed to fund the proposed tax cuts. We expect significant cuts to these provisions, including the highly criticized IRS funding.
Conclusion
Potential tax policy changes under Trump’s second term could have big impacts for you. It’s going to be a busy year for taxes.
We’ll keep a close eye on these provisions as they go through Congress. By understanding the proposed changes and planning strategically, we’ll be ready to guide you through this transition.
Feel free to contact us if you have any questions about the current tax provisions and the proposed changes being discussed.
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