By Kemberley Washington
Bankrate.com
(TNS)
Taxes may not be the first thing on your mind following the presidential election, but there’s no doubt that tax policy will play a key role in the year ahead, given that the 2017 Tax Cuts and Jobs Act (TCJA) is set to expire at the end of 2025.
The TCJA was the largest overhaul of the tax code in three decades, with massive changes for both individual and business taxpayers. During his presidential campaign, Trump said he wanted to make most of the TCJA provisions permanent.
Trump also proposed several new key tax initiatives, such as removing the current $10,000 limit on the state and local tax (SALT) deduction, eliminating taxes on Social Security and tip income, and further reducing the corporate tax rate.
But making good on his promises depends on the support of Congress. With the recent election, Republicans gained control of the Senate, but the House is still undetermined.
“Even though the House is still up for grabs, with Republicans controlling the Senate, Trump is significantly more likely to make good on many of the tax policies he has been campaigning on, including making popular provisions of the expiring TCJA permanent and increasing tariffs,” says Rochelle Hodes, a principal in the Washington national tax office at Crowe, an accounting firm.
Here’s what a Trump presidency could mean for your taxes.
1. Existing tax rules made permanent
The TCJA lowered income tax rates for all individuals but more significantly for high-income earners. The top marginal tax rate was reduced to 37% from 39.6%. (In 2024, the 37% tax rate applies to single filers with income over $609,350.)
The TCJA also doubled the standard deduction for most taxpayers, eliminating the need for most Americans to itemize their tax deductions.
And the TCJA increased the popular child tax credit to $2,000, from $1,000, and created a refundable portion of up to $1,400.
One of the biggest TCJA changes was slashing the corporate tax rate from 35% to 21%, creating a 20% deduction for pass-through business entities.
In an effort to offset the TCJA’s costs, the law repealed certain deductions, including the personal and dependency exemptions, and limited the state and local tax (SALT) deduction to $10,000. While Trump wants to make the majority of the TCJA tax provisions permanent, he said that in his second term he plans to remove the cap on the SALT deduction.
Jan Lewis, a certified public accountant (CPA) in Ridgeland, Mississippi, says the SALT deduction limitation has impacted taxpayers differently and, if repealed, could have unexpected tax implications, such as more taxpayers being subject to the alternative minimum tax.
Also, removing the SALT limit would take away some of the revenue to pay for other TCJA reforms, Lewis says.
2. No more taxes on Social Security benefits, tips and overtime pay
Along with permanently extending the tax cut provisions of the TCJA, Trump has said he wants to eliminate taxes on certain income items.
In a social media post in July, Trump said senior citizens should not pay taxes on their Social Security benefits. About 40% of people pay federal income tax on benefits, according to the Social Security Administration.
Under current law, Social Security benefits generally are taxable if you receive a substantial amount of other forms of income, such as wages, self-employment and investment income.
Up to 85% of your Social Security benefits is subject to income tax if your combined income, based on the Social Security Administration’s formula, is more than $34,000 (single filers) or $44,000 (married couples filing jointly).
Those with a combined income between $25,000 and $34,000 (single filers) or $32,000 and $44,000 (married filing jointly) pay income tax on up to 50% of their benefits. There’s no tax on benefits for people whose combined income is below those thresholds.
Eliminating taxes on Social Security benefits would primarily benefit taxpayers who earn between $63,000 and $200,000, according to estimates from the Tax Policy Center.
Trump has also proposed eliminating taxes on tip income and overtime pay. The Tax Policy Center expects his policy to model a recent bill passed in Alabama that exempts taxpayers from paying taxes on overtime pay.
3. Lower corporate taxes, and big new tariffs
Cutting corporate tax rates is also at the top of Trump’s agenda. The TCJA reduced the corporate tax rate to 21%, from 35%, during Trump’s first term in office. On the campaign trail this year, Trump proposed reducing corporate tax rates to as low as 15%—but only for corporations that make their products in the U.S.
Although Trump has not provided a detailed plan for structuring that proposal, a study conducted by Penn Wharton estimates that reducing the tax rate to 15% for all corporations would reduce tax revenue by $595 billion through fiscal year 2034.
Trump also has proposed a 10% tariff on all foreign goods, and a significantly higher tariff of 60% on imports from China. He says that higher tariffs will protect American businesses and encourage consumers to buy products made in the U.S.
However, some tax experts say that higher tariffs would cause a financial burden on low- to moderate-income taxpayers due to the potential for higher consumer costs.
What does all of this mean for you? Taxpayers should continue to monitor developments and prepare for tax law changes, Hodes says. Nothing is certain and there will be a lot on the table leading up to the TCJA cliff at the end of 2025.
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©2024 Bankrate.com. Visit Bankrate online at bankrate.com. Distributed by Tribune Content Agency LLC.
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Tags: Income Tax, State and Local Taxes, Taxes
