Now that the election is over, the tax proposals made by Donald Trump on his campaign trail are re-shaping how Americans are planning for their taxes. The overall theme on Trump’s proposed tax policy includes increasing revenue with tariffs and tax cuts for business owners, workers, and retirees. The following shows a summary of the main tax proposals mentioned throughout Trump’s campaign. Many of these proposals were mentioned with little to no supporting details. Any of these proposals would require Congressional approval before becoming effective.
Extension of the Tax Cuts and Jobs Act (TCJA)
The TCJA was one of the largest accomplishments of Trump’s first administration, but most of the tax changes are set to expire at the end of 2025. Here is a list of some of the TCJA provisions that Trump is looking to make permanent with this term.
- Child Tax Credit – Currently the credit is set to revert from $2,000 to $1,000 per qualified child without any actions taken. The permanent extension would retain the $2,000 credit.
- Tax Rate Structure – Currently the top rate is set to revert from 37% to 39.6% without any actions taken. The permanent extension would lock in the current tax rates, adjusted annually for inflation.
- Standard Deductions and Exemptions – Currently the standard deduction is set to revert from $30,000 to $16,700 for joint filers. Along with the reduced standard deduction, personal exemptions would be reinstated at $5,300 per claimed individual. The permanent extension would eliminate the personal exemptions and retain the higher standard deduction.
- Qualified Business Income Deduction– Currently the 20% deduction for qualified business income is set to expire. The permanent extension would retain this deduction for business owners.
- Restoring Bonus Depreciation – Currently bonus depreciation is scheduled to reduce in 20% increments until 2026 in which there will no longer be bonus depreciation on newly acquired assets. The permanent extension would reinstate 100% depreciation on assets with an asset life of 20 years or less.
While the following were changed under TCJA, both parties appear to agree on reverting the following provisions to pre-TCJA laws.
- State and Local Tax Deduction – Currently this deduction in limited to $10,000 for married couples that itemize their deductions. This is currently set to expire as of January 1, 2026.
- Reinstatement of Section 174 Expenses – Prior to TCJA, Research and Development Expenses fell under Section 174 and were eligible to be deducted as incurred. Under TCJA, these expenses were required to be capitalized and amortized over five years for domestic research expenses and fifteen years for foreign research expenses. There is not currently an expiration for this treatment.
New Tax Proposals
Along his campaign trail, Trump focused on increasing production in the U.S. and increasing tariffs on goods imported from foreign countries.
- Exempting Tip and Overtime pay from Taxes – Currently all tip and overtime income earned is subject to federal income tax as well as employment tax. Under the new proposal, this income would be excluded from all federal and employment tax.
- Eliminating Tax for First Responders – Under the new proposal, firefighters, police officers, and members of the military would no longer pay taxes on their wages.
- Eliminating Social Security Income from Tax – Currently up to 85% of Social Security income is subject to federal income tax once an individual’s income exceeds $34,000 ($44,000 for married taxpayers). Under the new proposal, all Social Security income would be exempt from federal income tax.
- Lowering Corporate Taxes – Under TCJA the corporate tax rate fell from 35% down to 21%. Trump has proposed to further reduce the rate down to 20% along with reinstating the Domestic Production Activity Deduction to further reduce the effective rate to 15% for US based manufacturing.
- Tariffs of Foreign Goods – In order to offset the tax cuts above, Trump’s proposal would increase tariffs from 10% to 20% on most imports and specifically targeting imports from China with a Section 301 tariff as high as 60%.
What does this all mean?
With all signs indicating the Republican party has taken control of the Presidency, Senate, and House of Representatives, it is very likely that we will see some form of tax legislation within the first two years of Trump’s presidency. As with all tax proposals, there will most likely be many modifications and compromises made as it makes its way through Congress.
At HD Growth Partners, we will continue to monitor and alert you as updates come so we can plan accordingly! If you have any questions, don’t hesitate to reach out to our team at 330-749-8522 or [email protected]