What to Expect from Potential Tax Changes Under Trump’s New Term and How to Prepare

As tax professionals, we know that changes in leadership often bring shifts in tax policy, affecting everything from deductions and exemptions to estate taxes and business regulations. With President Donald Trump’s recent re-election, we may see updates to tax policy based on his prior administration’s actions and new proposals. For individuals and businesses alike, understanding these changes and planning ahead could make a substantial difference in tax savings and financial efficiency.

In this article, we’ll explore what tax policies may be on the horizon, including proposed extensions of the Tax Cuts and Jobs Act (TCJA) and potential new deductions and exemptions. Keep in mind that while these policies aren’t yet set in stone, we’re here to provide insight and preparation strategies for our clients. As always, we encourage you to contact our office with any questions on tax planning and potential impacts on your situation.

1. Extending the Tax Cuts and Jobs Act (TCJA) Provisions for Individuals

The TCJA introduced significant tax cuts in 2017, benefiting both individuals and corporations. However, many of these provisions are set to expire after 2025. President Trump’s recent policy stance suggests a priority to make these individual tax cuts permanent, which could mean continued benefits for many taxpayers, especially those in middle to high-income brackets. Some key areas that could be impacted if the TCJA provisions are extended include:

• Itemized Deductions: This could mean the ongoing suspension of certain itemized deductions, including the phase-out of the deduction limit for specific items, as well as limitations on deductions for personal casualty losses.
  
  
• Charitable Contributions: The increased percentage limit for cash contributions to public charities (from 50% to 60%) may remain, offering more generous opportunities for tax savings through charitable giving.
  
  
• Home-Related Deductions: The qualified residence interest deduction could see changes, with limits on home equity interest deductions continuing.
  
  
• Student Loan Assistance: Extended provisions could retain exclusions for certain student loan discharges and employer-provided student loan assistance, helping borrowers manage debt with some tax relief.

How to Prepare: Individuals can start by reviewing their deductions and contributions, especially if charitable giving or homeownership is part of their financial strategy. Planning around these extended provisions could help you maximize deductions and reduce taxable income.

1. Changes to Exemptions and Exclusions
   Trump’s proposals include expanding certain exclusions and exemptions, aiming to simplify tax calculations and provide relief for specific income sources. Here are a few areas that may see changes:

• Social Security Benefits, Tips, and Overtime Pay: A proposed exemption for these income sources could reduce taxable income for many taxpayers, especially those nearing retirement or working in overtime-intensive industries.
  
  
• Increased Estate and Gift Tax Exemptions: This change would further raise the threshold for estate and gift tax liabilities, benefiting high-net-worth individuals and families looking to pass on wealth without a significant tax burden.

How to Prepare: Consider incorporating these potential exemptions into your income planning strategy. For high-income earners, this could mean updating estate plans and exploring additional wealth transfer strategies to maximize potential tax savings.

3. Eliminating the SALT Cap

One of the more contentious aspects of the TCJA was the $10,000 cap on state and local tax (SALT) deductions, which many argue disproportionately impacted taxpayers in high-tax states. Trump’s new policy proposals include a complete removal of this cap, allowing taxpayers to deduct the full amount of their state and local taxes from their federal taxable income.

How to Prepare: If the SALT cap is lifted, taxpayers in high-tax states may see a notable decrease in taxable income. Adjusting your withholding and revisiting your quarterly tax estimates could be beneficial if this change comes into effect.

4. Business Deductions Restored

For business owners, several deductions that have been phased out or limited may make a comeback:

• 100% Bonus Depreciation: This popular provision, which allows businesses to deduct the entire cost of eligible assets in the year they’re placed in service, is currently phasing out. A potential extension would allow business owners to continue taking full deductions, increasing cash flow, and incentivizing investment in new equipment.
  
  
• R&D Expensing: Returning this deduction in full could help companies that invest heavily in innovation by allowing them to immediately expense their R&D costs, rather than amortizing them over several years.
  
  
• Interest Deduction (EBITDA-Based): By returning to a more favorable interest expense deduction tied to EBITDA (earnings before interest, taxes, depreciation, and amortization), more businesses may be able to deduct interest costs, especially in capital-intensive industries.

How to Prepare: Business owners should consider the potential cash flow benefits of these restored deductions and plan their purchasing and financing strategies accordingly. Speaking with our office can help determine the optimal timing for asset purchases and other significant expenditures.

5. New Import Tariffs

A notable addition to Trump’s tax policies includes a proposed 20% universal tariff on all U.S. imports, which could affect businesses that rely on imported goods and materials. While this tariff is primarily aimed at boosting domestic production, it could also mean increased costs for companies that rely on foreign suppliers.

How to Prepare: For businesses with an international supply chain, now is the time to evaluate options for sourcing domestically or working with U.S.-based suppliers. This could mitigate the impact of higher costs due to import tariffs.

6. Additional Potential Deductions and Credits

Several additional provisions aim to provide taxpayers with more deductions and credits, such as an auto loan deduction and enhanced employer benefits, including tax-free student loan payments. These provisions could provide relief for specific spending areas and reduce taxable income for certain taxpayers.

How to Prepare: These deductions could offer substantial benefits, especially for families with college expenses and those managing large debts. Working with our experts to incorporate these into your tax plan could lead to considerable savings.

Start Planning Now for Potential Tax Changes

Navigating tax policy changes can be complex, but proactive planning can make all the difference in maximizing benefits and minimizing liabilities. At our office, we stay informed about upcoming tax developments to help clients make well-informed financial decisions.

If you’re interested in how these potential tax changes might affect your personal or business taxes, we’re here to help. Contact our office today to discuss tailored tax planning strategies that keep you ahead of the curve.