Preparing for Potential Tax Changes Under President Trump’s New Term: What to Expect

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As tax professionals, we understand that shifts in political leadership can lead to adjustments in tax policy, impacting deductions, exemptions, estate taxes, and business regulations. With President Donald Trump’s recent re-election, there is potential for further developments based on his prior administration’s tax policies and new proposals. Proactive planning can help individuals and businesses make the most of these anticipated changes, potentially increasing tax savings and financial efficiency.

This article outlines possible tax policies on the horizon, including extensions of the Tax Cuts and Jobs Act (TCJA) and additional deductions and exemptions. While these changes are not yet confirmed, our goal is to provide guidance and planning strategies for our clients. Don't hesitate to contact our office with any questions on tax planning and potential impacts on your financial situation.

1. Extending TCJA Provisions for Individuals

The TCJA, introduced in 2017, brought significant tax cuts for individuals and corporations, many of which are set to expire after 2025. President Trump’s policy stance suggests a push to make these individual tax cuts permanent, potentially continuing benefits for middle- to high-income taxpayers.

Key areas that could be impacted by an extension of TCJA provisions include:

• Itemized Deductions: This may involve continuing to suspend certain deductions, such as limits on personal casualty loss deductions.

• Charitable Contributions: The increased limit for cash contributions to public charities (from 50% to 60%) could remain, allowing for more significant tax savings through charitable giving.

• Home-Related Deductions: Limits on home equity interest deductions may continue, affecting deductions for qualified residence interest.

• Student Loan Assistance: Extended provisions could retain exclusions for certain student loan discharges and employer-provided assistance, providing tax relief for borrowers.

  
  

Preparation Tip: Review your deductions and contributions, especially in charitable giving and homeownership areas. Planning around these extended provisions can help maximize deductions and reduce taxable income.

2. Changes to Exemptions and Exclusions

Trump’s proposals suggest expanding certain exemptions and exclusions to simplify tax calculations and ease the tax burden for specific income sources.

Potential areas of change include:

• Social Security Benefits, Tips, and Overtime Pay: Proposed exemptions on these income sources could reduce taxable income, primarily benefiting retirees and workers in overtime-intensive jobs.

• Estate and Gift Tax Exemptions: Higher exemption thresholds may reduce estate and gift tax liabilities for high-net-worth individuals, facilitating wealth transfer with minimized tax impacts.

  
  

Preparation Tip: High-income earners may want to consider updating estate plans and exploring wealth transfer strategies to maximize potential tax savings.

3. Eliminating the SALT Cap

The $10,000 cap on state and local tax (SALT) deductions, introduced by the TCJA, has been controversial, particularly for taxpayers in high-tax states. Trump’s recent proposals include removing this cap and allowing total deductions of state and local taxes from federal taxable income.

Preparation Tip: If the SALT cap is lifted, taxpayers in high-tax states could see significant reductions in taxable income. Adjust your withholding and review quarterly tax estimates if this change is implemented.

4. Restoration of Business Deductions

Several business deductions phased out or limited under the TCJA may be restored, offering renewed opportunities for tax savings:

• 100% Bonus Depreciation: This allows businesses to deduct the full cost of eligible assets in the year they are placed in service. A potential extension could enhance cash flow and encourage investment in new equipment.

• R&D Expensing: Restoring full deduction for research and development expenses could benefit innovation-driven companies, allowing immediate expensing of R&D costs.

• Interest Deduction (EBITDA-Based): Tying interest expense deductions to EBITDA could offer broader deductions, especially beneficial for capital-intensive industries.

Preparation Tip: Business owners should consider the cash flow benefits of these

restored deductions and plan asset purchases and financing strategies accordingly. Contact us for guidance on timing significant expenditures.

5. Proposed Import Tariffs

Trump’s tax policies include a proposed 20% tariff on all U.S. imports, which could impact businesses dependent on foreign goods. While the primary goal is to boost domestic production, this tariff may increase costs for companies relying on international suppliers.

Preparation Tip: Businesses with international supply chains should explore sourcing domestically or consider U.S.-based suppliers to reduce exposure to higher costs due to import tariffs.

6. Additional Deductions and Credits

Additional provisions include potential deductions, such as an auto loan deduction, and enhanced employer benefits, like tax-free student loan payments. These could reduce taxable income for families with education expenses or individuals managing debt.

Preparation Tip: Work with our experts to explore how these deductions can fit into your tax strategy and potentially lead to substantial savings.

Start Planning Now for Potential Tax Changes

Navigating tax policy changes can be challenging, but proactive planning can be instrumental in optimizing your tax strategy. Our team stays informed about tax developments to help clients make sound financial decisions.

If you want to understand how these potential tax changes may affect your taxes, contact us to discuss personalized tax planning strategies that keep you a step ahead.