Table of Contents
January 22, 2025
Tax planning strategies for individuals and small businesses are a moving target with the upcoming Trump administration. The expectation is that income tax rates will stay lower for longer. The current Tax Cuts and Jobs Act (TCJA) law, which reduced individual tax rates, is set to expire on December 31, 2025. Still, that expiration is much less likely under the Trump administration and a Republican-led Congress.
A summary of Trump's proposals with tax ramifications includes the following:
1. Income Tax Rates:
Lower Rates: Trump aims to make the lower individual income tax rates from the TCJA permanent. This means the top marginal tax rate for high earners would remain at 37%, and corporation tax rates would be reduced possibly to 15%.
Capital Gains: There are discussions about reducing the top long-term capital gains tax rate to 15%.
2. Standard Deductions and Credits:
Standard Deduction: The higher standard deduction introduced by the TCJA will likely be permanent. It is $29,200 for married couples filing jointly and $14,600 for single-filing taxpayers.
Child Tax Credit: Trump supports increasing the child tax credit to $5,000 per child.
3. Estate and Gift Taxes:
Exemptions: The higher exemption amounts for estate and gift taxes from the TCJA are expected to be extended.
4. State and Local Tax (SALT) Deduction:
SALT Cap: The $10,000 cap on state and local tax deductions might be allowed to expire, providing more significant deductions for those in high-tax states.
5. Retirement Planning:
Social Security Taxes: Trump has proposed eliminating taxes on Social Security benefits, which could impact retirement planning.
6. Tariffs and Trade Policies:
Trump's proposed tariffs on imported goods could affect investment strategies, particularly for those with significant exposure to international markets, and affect the price of imported goods for U.S. persons and businesses.
These proposed tax changes encourage taxpayers to fine-tune their tax planning and investment strategies. The normal tax planning strategy of deferring income may need to be revised because tax rates may be lower for the next few years but higher later. For example, a taxpayer could convert traditional IRA accounts to Roth accounts today to avoid paying taxes on distributions from these accounts in future years. Every taxpayer should seek advice for their specific situation.
For further reading, see:
https://www.crowe.com/insights/president-elect-trumps-tax-proposals-at-a-glance?form=MG0AV3