As Republicans secure control of the House, Senate and White House, potential tax policies proposed by President-elect Donald Trump could take effect as early as 2025. While specific plans are yet to be detailed, the sunset of the Tax Cuts and Jobs Act (TCJA) provisions at the end of 2025 looms. Taxpayers should be prepared for significant changes in tax policy that may soon impact their personal wealth and financial planning.
Key Tax Provisions to Watch
New tax legislation must pass through Congress. With a Republican majority, the prospect of enacting President-elect Trump’s tax policies increases. Republicans will most likely be able to use the “budget reconciliation” process that allows the passage of new tax legislation with a simple majority vote.
The TCJA’s Sunset: What It Means
Enacted during the first Trump administration, the TCJA overhauled corporate and individual tax codes. Most corporate tax provisions are permanent under the TCJA, including reducing the corporate tax rate from 35% to 21%. However, many individual tax provisions will expire at the end of 2025. The most significant expiring provisions include:
- Individual Income Tax: The TCJA lowered the maximum income tax rate from 39.6% to 37.0%. These rates will revert in 2026.
- Standard Deduction: Doubled under the TCJA, the standard deduction for 2024 is $14,600 for singles and $29,200 for joint filers. In 2026, these rates will revert to the pre-TCJA level, nearly half the current level.
- State & Local Tax Deduction (SALT): The TCJA imposed a $10,000 cap on state and local tax (SALT) deductions. Beginning in 2026, all property and income taxes will be deductible, which many see as benefiting high-income taxpayers in high-tax states.
- Child Tax Credit: Doubled by the TCJA, the credit will revert to $1,000 per child in 2026. Bipartisan support exists to make this change permanent.
- Individual Alternative Minimum Tax (AMT) Exemption: The TCJA increased the AMT exemption amount and raised income levels for phaseout, reducing taxpayer liability. If expired, exemptions will decrease significantly.
- Estate Taxes: The TCJA doubled estate tax exemptions. For 2024, a single taxpayer can claim an exemption of $13.61 million, with married couples eligible for double. If the provision expires in 2026, these amounts will be reduced to nearly half.
President-elect Trump’s Proposed Tax Policies
While detailed plans remain forthcoming, Trump indicated support throughout his campaign for making TCJA provisions permanent and introducing new tax initiatives.
- Corporate tax rates & tariffs: The TCJA permanently reduced the corporate tax rate from 35% to 21%. Trump has proposed lowering corporate tax rates further to 15% for companies producing their products in America. Tariffs on imports have been proposed to offset these cuts. Trump has generally called for tariffs ranging from 10% to 20%, with higher rates on imports from China.
- Income Taxes & SALT Deduction: Trump favors keeping the TCJA tax cuts permanent and eliminating the $10,000 SALT cap deduction after 2025. Prior to the TCJA, the SALT deduction was unlimited, although previous AMT and “Pease” limitations on deductions reduced its benefit for some taxpayers.
- Tax Exclusions for Income: President-elect Trump has also proposed eliminating taxes on tips for restaurant and hospitality workers. He also discussed eliminating all taxes on overtime pay, aiming to boost incentives while offering tax relief for individuals such as police officers, nurses, truck drivers, factory workers and construction workers.
- Social Security Taxation: On July 31, Trump posted on his Truth Social platform that he has supported eliminating all taxes on Social Security benefits. Currently, up to 85% of benefits are taxed for individuals with an income over $34,000, and married couples filing jointly are taxed on a combined income of $44,000. He has yet to address how he'll supplement income from these taxes to support Social Security and Medicare funds.
- Child Tax Credit: While Vice President-elect Vance has suggested increasing the Child Tax Credit to $5,000 per child, President-elect Trump leans towards additional deductible expenses related to having a newborn. He did not specify what these new “expenses” would entail.
Additional Republican Party platform incentives for families include expanding tax benefits for education savings accounts, creating a new credit for first-time homebuyers and creating a new credit for family caregivers.
Anticipating Challenges in 2025
Despite a Republican majority in Congress, implementing new tax policies quickly faces financial hurdles, particularly the cost of extending TCJA provisions. The nonpartisan Congressional Budget Office (CBO) estimated a full extension would cost $4.4 trillion over 10 years. That number will only get larger when the 10-year budget window shifts forward next year.
In addition, the CBO has not factored in Trump’s proposed reducing corporate tax rate, eliminating federal taxes on some incomes and reinstating the unlimited SALT deduction. Other proposed changes could further elevate these costs, introducing uncertainty in Congress’s ability to pass these policies.
Proactive Tax Planning: End-of-Year Tax Strategies
With the future tax landscape uncertain, proactive tax planning is crucial. Here are a few steps to consider for effective financial planning:
- Leverage Estate Tax Exemptions. Take advantage of estate tax exemptions set to expire at the end of 2025. Consider giving large gifts or setting up a trust to transfer wealth. When considering your estate planning approach, remember these exemptions may not expire. In this case, you’ll want to align any changes with your long-term financial goals.
- Prioritize Financial Planning. Evaluate potential tax-advantaged strategies like retirement contributions and charitable donations that you could optimize under current tax rates. You may also want to explore options to accelerate income or defer deductions as needed.
- Reassess Business Structure. For pass-through entities, assess your eligibility for the QBI deduction and strategies to maximize for end-year taxes and the 2025 tax season. This may include restructuring or capital investments.
- Maximizing Deductions. Review itemized deductions and their impact on your tax liability. Consider strategies like bunching deductions, prepaying taxes or charitable contributions that can help maximize deductions under the current SALT cap rules.
- Be Proactive & Engaged. Stay informed about evolving tax regulations and work with a tax advisor to adjust quickly. Ask questions and develop strategies for different scenarios to help you prepare for potential surprises. A proactive approach helps safeguard your financial interests and optimize your tax planning efforts.
Taking the Next Step
While election results are in, uncertainties remain about TCJA provisions and other tax benefits expiring over the next year. Proactive tax planning and strategizing can maximize returns amid evolving scenarios. Consulting with an LTax advisor can provide clarity and guidance tailored to your wealth management needs.
Contact an LTax advisor or call (561) 453-1441 to begin planning for potential federal tax changes today.
LEGAL OR TAX: The information herein is not legal, such as trust or estate planning, advice, or tax advice. Any such information is provided for illustrative purposes only and must not be relied upon without the benefit of the advice of your lawyer and/or tax professional. Lido specifically disclaims any liability from any reliance on such information. Lido is not a legal service provider or tax professional and does not offer legal or tax advice. Should you desire to obtain tax or legal services or advice, you must enter into your own, independent engagement agreement with a licensed attorney or tax professional.