President Trump On Taxes: Post Election

As we approach inauguration day, many of our clients are asking us for a Trump Tax update.

Will the Tax Cuts & Jobs Act be extended?

Is 100% Bonus Depreciation coming back?

After reporting heavily on the candidates’ tax plans on the campaign trail, we’re here to provide an update on what he’s said since reaching 270.

Trump Tax Cuts and Jobs Act

Trump emphatically campaigned on reinstating the Tax Cuts and Jobs Act set to expire in 2025.

Now he has to get Congress on board.

With the majority in the House and Senate being red, the likelihood of pulling it off increases.

However, counterproductive to the newly coined, DOGE, the Department of Government Efficiency, it is estimated that the extension may add $5 trillion+ to the national deficit.

With TCJA provisions hanging in the balance, what moves should you make?

Recommendation: If TCJA NOT getting extended would impact you substantially, you should prepare for the “worst-case scenario”.

Example:

Small business owners affected by the expiration of the qualified business income deduction should work into their financials an increase in their taxes for 2026.

Impact of the Expiration of TCJA

• Qualified Business Income (QBI) Deduction: The existing 20% deduction will be phased out.
• Tax Rates: Tax brackets for individuals will revert to the levels prior to 2018, with the top rate increasing from 37% to 39.6%.
• Standard Deduction: The standard deduction will be reduced by half, reinstating personal exemptions.
• Child Tax Credit: This credit will see a 50% reduction.
• State and Local Tax (SALT) Cap: The current $10K cap will no longer apply. This expiration is one that has the support of President Trump.
• Estate Tax Exemption: The threshold for exemptions will decrease by half.
• Bonus Depreciation: The 100% bonus depreciation that has been gradually reduced will expire.

The Trump Tariff Update

If you followed Trump’s presidential campaign, you know the emphasis on Tariffs was heavy.

What is he saying now?

On November 25, 2024, President Trump posted on Truth Social, “…On January 20th, as one of my many first Executive Orders, I will sign all necessary documents to charge Mexico and Canada a 25% Tariff on ALL products coming into the United States, and its ridiculous Open Borders…”

This adds fuel to a growing fire for Americans—the cost of goods.

A couple of weeks later, when asked during NBC’s “Meet the Press” to “guarantee American families won’t pay more”, President Trump replied “I can’t guarantee anything. I can’t guarantee tomorrow.

But I can say that if you look at my–just pre-Covid, we had the greatest economy in the history of our country. And I had a lot of tariffs on a lot of different countries but in particular China. “

Other Impacts of Potential Trump Tax Changes

Impact of “No Tax on Tips”

Donald Trump’s proposal to eliminate taxes on tips primarily affects a small part of the labor market (2.5% of workers), many of whom already don’t pay federal income tax.

The policy could encourage service price manipulation to increase untaxed tips and prompt employers to reclassify more workers as tipped employees, lowering their base salary significantly.

It would also add about $100 billion to the federal deficit over ten years.

Impact of Ending Taxes on Social Security Benefits

Ending taxes on Social Security benefits would not affect most current retirees, as only about 40% pay federal income taxes on these benefits.

However, it would significantly reduce funding for the Social Security Trust Fund, risking its financial stability and potentially depleting resources sooner than expected, affecting future beneficiaries.

Trump & The IRS

In Washington, several critics of President-elect Donald Trump, including former officials from his first administration, are preparing for potential IRS audits as retribution, a concern fueled by Trump’s history of threatening his perceived enemies.

Historically, some U.S. administrations have misused the IRS to target political opponents, and this has raised fears among Trump’s critics that they could be similarly targeted.

These individuals, including former national security and CIA officials, are meticulously reviewing their financial records to ensure there are no irregularities that could be exploited in an audit.

While Trump has not publicly stated he would use the IRS in this way, the concern remains due to his past actions and statements against opponents. This anxiety is compounded by the complex nature of U.S. tax systems and the costly, stressful nature of IRS audits.

Recommendations for Proactive Planning

1. Work with an Estate Attorney: Prepare for the halving of the estate tax exemption by establishing or updating estate plans. This step will help mitigate potential tax burdens on wealth transfers.
2. Consider Alternative Entity Elections: If the QBI deduction is phased out, explore whether restructuring your business entity could provide tax benefits under the new rules.
3. Anticipate Bonus Depreciation Changes: Prepare for the possibility of bonus depreciation returning but avoid relying on 100% reinstatement. Adjust your depreciation strategies accordingly.
4. Plan for Tax Rate Increases: Individuals and business owners should evaluate how reverting tax brackets could impact their financials and consider strategies to minimize taxable income.
5. Consult a Tax Professional: Stay informed and agile by consulting with tax professionals to navigate the changing tax landscape and optimize your financial decisions.

What’s the Timeline?

Despite many substantial changes being discussed by Trump’s team, The expiration of the TCJA at the end of 2025 makes many Americans (especially real estate investors) uneasy.

When will we know the outcome?

Garrett Watson, senior policy analyst and modeling manager at the Tax Foundation stated,

“The House seems to want to do it earlier; the Senate maybe later. It’s also not clear how that legislation would align with Trump’s other policy goals, such as around immigration.

One option is to put this all into one big package and pass it all at once. Another thing that’s been floated publicly in recent days has been separating this into two packages: one on nontax, one on tax.”

While much remains hanging in the balance, it is crucial to consult with a tax professional to prepare accordingly for potential changes.

Contact us today for an initial consultation.