With Donald Trump poised to return to the White House next January, tax planning will be a top priority as his administration looks to fulfill campaign promises related to tax reform.
One of the most pressing issues will be the expiration of key provisions from the 2017 Tax Cuts and Jobs Act (TCJA). This law was a hallmark of President Trump’s first term and included significant tax cuts for both individuals and businesses. While the Republican Party has regained control of the Senate, the balance of power in the House remains uncertain, which will likely influence the direction of tax policy.
Potential Impact of Expiring Provisions
The expiration of certain provisions from the TCJA could lead to a substantial tax increase for many individuals and businesses. According to experts, extending these provisions could cost as much as $4.6 trillion. For individuals, the expiration of provisions such as the expanded standard deduction could lead to higher taxes for middle-class families, a scenario that any president or Congress would likely aim to avoid.
To mitigate this, discussions will center on which provisions should be allowed to expire and which should be extended or adjusted. There will also be debates over how to pay for these changes, and whether any offsets (such as closing tax loopholes or revisiting deductions) will be necessary.
Key Proposals to Watch
President Trump’s campaign included a variety of tax proposals that could affect individual and business tax planning. Some of the most notable proposals include:
Making the TCJA’s Individual Provisions Permanent: Many provisions of the TCJA, such as the doubling of the standard deduction, are set to expire after 2025. There is strong interest in making these provisions permanent to avoid tax increases for individuals. In particular, the elimination of the “marriage penalty” and the higher standard deduction could be a major boon for middle-income families.
Corporate Tax Cuts: The TCJA reduced the corporate tax rate to 21%, but Trump has signaled that he may seek to lower this rate further. Some Republican lawmakers have pushed for a reduction to just below 21%. Lower corporate tax rates could encourage investment and business growth, but it may also necessitate offsetting measures to make the proposal revenue-neutral.
State and Local Tax (SALT) Deduction Cap: One of the more contentious elements of the TCJA was the $10,000 cap on state and local tax deductions. Many Republicans from states with high local taxes have advocated for its repeal or modification. Trump has expressed a willingness to revisit this issue, which could have significant implications for taxpayers in high-tax states.
Research and Development (R&D) Tax Incentives: Another provision Trump may seek to restore is the Section 174 deduction for R&D expenses. This provision, which was altered under the TCJA, has broad bipartisan support. The ability for businesses to fully expense R&D costs in the year incurred could help encourage innovation and growth, particularly for small to medium-sized businesses.
Other Tax Proposals on the Table
Beyond these major tax changes, President Trump’s campaign included a range of additional tax proposals. While some may be less likely to move forward, they still offer important considerations for tax planning:
Eliminating Taxes on Tips, Social Security Benefits, and Overtime: Trump proposed eliminating taxes on tips for hospitality workers, Social Security benefits, and overtime pay. These changes could have a positive impact on workers in certain industries, particularly those in lower-wage jobs.
Tax Breaks for Public Service Workers and Caregivers: Trump also proposed eliminating taxes on the income of firefighters, police officers, and military personnel, as well as providing tax credits for family caregivers. These proposals could help reduce financial burdens on these important workers.
Tax Credit for U.S.-Made Cars: A tax incentive for individuals who purchase a car manufactured in the U.S. was another proposal. This could influence both consumer behavior and U.S. manufacturing jobs.
How Should You Prepare?
Given the uncertainty surrounding tax changes, strategic tax planning will be essential for individuals and businesses in the coming months. A few key steps to consider include:
Review Your Current Tax Position: With potential changes to the tax code on the horizon, it’s important to understand where you stand from a tax perspective. This includes reviewing deductions, credits, and income sources that could be impacted by changes in tax policy.
Consider the Timing of Major Decisions: If you are considering major financial decisions—such as selling assets, making large charitable donations, or implementing retirement savings strategies—now may be the time to consult with a tax professional. Shifting the timing of certain transactions could help minimize your tax liability depending on the direction of tax policy.
Plan for Business Tax Changes: Business owners should prepare for potential changes to corporate tax rates, deductions, and credits. Planning ahead for possible changes in tax treatment can help you make informed decisions about investments, business expansions, and hiring.
Stay Informed: Tax laws can change rapidly, and while the outcome of the 2024 election may have a significant impact on tax policy, the legislative process can take time. Staying in touch with your tax advisor will ensure you remain up to date on any developments that could impact your personal or business tax strategy.
At Accavallo & Company LLC, we are committed to providing our clients with timely, actionable tax advice to help you navigate the evolving tax landscape. With the 2024 election setting the stage for possible tax reforms, now is the time to begin planning for the future. Please reach out to our team to discuss how the upcoming changes may impact your tax strategy and to ensure you are in the best position to take advantage of any new opportunities.
