Nothing is certain but death and taxes, but with a new administration starting in January, even tax policy is likely to change in the coming years.
Trump’s campaign emphasized lowering American’s tax liabilities and during his first term in office, the Tax Cuts and Jobs Act of 2017 (TCJA) resulted in the biggest change to the federal tax code in more than 30 years. With control of the Senate and the House of Representatives, it is likely that there will be significant tax policy changes in the coming years.
A core message during Trump’s campaign for President was to make the TCJA permanent. That act permanently lowered the corporate tax rate and lowered individual tax rates from 2018-2025 to have seven tax brackets of 10, 12, 22, 24, 32, 35 and 37%. After 2025, the individual tax rates would revert to their previous brackets of 10, 15, 25, 28, 33, 35 and 39.6%. If approved, the current seven tax brackets would become permanent for the benefit of those in six of seven of the brackets.
Making the TCJA permanent would directly affect Estate Tax as currently the annual gift estate tax exemption is scheduled to end at the end of 2025, which will significantly reduce one’s ability to protect wealth generational transfer. If Trump’s proposal is successful to make TCJA permanent, the current doubling of the exclusion amount applicable to estate, gift, and generational skipping transfer would remain in place, presenting a significant tax planning opportunity.
Below is a summary of additional core tax policy elements from Trump’s campaign platform and how they would change from current tax law:
- Taxation on Tips
Current law includes tip income for restaurant and hospitality workers as taxable income, like their base wages. Trump has proposed eliminating tax on tips. This is likely to change. - Overtime Income
Under current law, overtime wages are taxed as regular income.
Trump has proposed eliminating overtime income from being taxable income. This is unlikely to happen. - Social Security Income
Under current law, social security benefits are taxed at a lower rate. (There are formulas in place to total all types of income including Social Security and the total cannot be in excess of a certain amount defined by the statute)
Trump has proposed that Social Security income is not taxable.
While there are many other areas of tax policy including housing tax incentives, corporate taxation, electric vehicle credits, state and local tax deduction, and taxation on foreign businesses, there are not currently clearly defined tax policies that Trump has laid out. We do expect there will be additional tax incentives implemented under the new administration including for US-based business, especially manufacturers.
As the new administration takes office, we will monitor closely any proposed policy changes and communicate updates to work with our clients on effective tax strategies and planning.