Having won control of the White House, the Senate and the House of Representatives, Republicans will have the opportunity to move forward their vision for federal taxes. What might this mean?
First, many provisions in President-Elect Donald Trump’s signature tax legislation from his first time in the White House, the Tax Cuts and Jobs Act (TCJA), are scheduled to expire at the end of 2025. Now, there’s a better chance that most provisions will be extended.
Second, the former and future president has suggested many other tax law changes during his campaign. Here’s a brief overview of some potential tax law changes:
Business Taxes
Numerous tax law changes have been discussed that would affect businesses, including changes affecting:
Corporate income tax rates. The president-elect has suggested decreasing the current rate of 21% to 20%, and to 15% for corporations that manufacture products in the United States.
Research and development (R&D) expenses. Proposals include expanding or revising R&D credits and removing mandatory capitalization and amortization of R&D expenditures. The latter would allow immediate R&D deductions in the year expenses are incurred.
Sec. 199A qualified business income (QBI) deduction. This 20% deduction for certain income of sole proprietors and pass-through entities is set to expire at the end of 2025. There’s a good chance it will be extended or made permanent.
Bonus depreciation. This deduction is currently at 60% and set to drop to 40% for 2025 and 20% for 2026, then disappear. One proposal would reinstate this to 100%.
Individual Taxes
Potential tax law changes are also on the horizon for individual taxpayers, such as related to the following:
Expiring provisions of the TCJA. Examples of expiring provisions include lower individual tax rates, an increased standard deduction, and a higher gift and estate tax exemption. The president-elect would like to make the TCJA’s individual and estate tax cuts permanent. He’s also indicated that he’s open to revisiting the TCJA’s $10,000 limit on the state and local tax deduction.
Individual taxable income. The president-elect has proposed eliminating income and payroll taxes on tips for restaurant and hospitality workers, and excluding overtime pay and Social Security benefits from taxation.
Child tax incentives. President-Elect Trump has voiced support for increasing the current cap on the Child Tax Credit ($2,000 per qualifying child), but no formal policy proposal has been made.
Electric-Vehicle Credit. The president-elect has said informally that he would consider eliminating the electric-vehicle credit. If you’re thinking about purchasing an electric vehicle, you may want to do so by the end of 2024 just in case the credit is eliminated for 2025.
Housing incentives. President-Elect Trump has alluded to possible tax incentives for first-time homebuyers but no specific proposals relating to tax incentives for housing. The Republican platform calls for reducing mortgage rates by slashing inflation, cutting regulations, opening parts of federal lands to new home construction. It also proposes tax incentives for first-time homebuyers.
Tariffs
The president-elect has called for higher tariffs on imports, suggesting a baseline tariff of 10% to 20% on most imported goods, a 60% tariff on imports from China and a 100% tariff on vehicles imported from Mexico.
How Will You Be Affected?
Which extensions and proposals become law will depend on a variety of factors. For example, Congress has to pass tax bills before the president can sign them into law. Republicans don’t have wide margins in the Senate or House, which could make it challenging to get certain tax law changes passed that aren’t universally popular with Republicans. If you have questions about how you might be affected by potential tax law changes, please contact the office.
