How A Trump Presidency Could Impact Your 2025 Tax Return – Part 1
A U.S. Presidential election is only the beginning when it comes to changes in government, leadership, and especially tax policy. As President-Elect Donald Trump prepares to take office, we’re digging into his proposed tax policy changes. Here’s what we’ve gleaned from his platform and his statements, in addition to how it’ll affect our clients when policies are enacted. While this isn’t a conclusive list of the Trump administration’s proposed tax changes, it’s the list we’re following closely on behalf of our clients who manage millions in active and passive income.
The biggest question mark surrounds the 2017 Tax Cuts and Jobs Act (TCJA), signed into law by President Trump during his first term. The TCJA expires at the end of 2025 and many, including us, are wondering how the act will extend, change, or integrate into Trump’s tax platform for this term.
What have been the biggest benefits of the TCJA?
Most importantly, the TCJA lowered the corporate tax rate to a maximum of 21% for C-Corporations. Additionally, the Qualified Business Income (QBI) deduction, allowed businesses such as single-member LLCs, pass-through entities, certain trusts and estates to benefit by excluding up to 20% of their business income. The TCJA also changed bonus depreciation, which in 2024 allows for 60% accelerated depreciation in the first year for certain fixed assets, but that percentage will drop by 20% annually until it reaches zero. Finally, the TCJA created opportunity zones, where economic investment in underutilized geographic areas was encouraged through tax incentives. The TCJA included many other changes and provisions but these are the ones we’ve seen benefit our tax clients most often.
What have been the biggest challenges of the TCJA?
There are a few provisions of the TCJA we won’t miss when (or if) it expires. Through the TCJA, like-kind exchanges (LKEs) only apply to certain real property, whereas previously personal and intangible property were included. Net Operating Losses (NOLs) can no longer be carried back to offset prior year taxable income. Under the TCJA, NOLs can only be carried forward to future years to offset future taxable income. Finally, two important caps were established by the TCJA. For losses created after December 31, 2017, NOLs are capped at 80% of taxable income. The state and local income tax deduction (SALT), was also capped at $10,000.
What’s next for the TCJA?
We hope that instead of expiring the TCJA, the Trump administration extends many of the beneficial tax laws mentioned above. We hope they also extend the R&D tax credit rules which state no capitalization is required for certain expenses. We also hope they increase bonus depreciation from 60% for 2024 to 100% in 2025 (or even retroactively for 2024) and extend estate exemption amounts as this impacts many of our clients’ estate planning strategies. (Note: We’ll be sending email updates as tax policy changes happen to make sure our clients know how they’re affected, if at all.)
Beyond the TCJA, let’s look at Trump’s other proposed tax changes. Again, this isn’t an exhaustive list, but some of the policies we’re following closely because they affect a high percentage of our tax strategy clients.
How does President-Elect Trump want to change income taxes?
Trump has proposed extending the TCJA income tax provisions and establishing just two tax rates at 15%, then 30% for those making over $170,000 per year. In addition to minimizing the number of tax brackets, Trump has also discussed repealing most deductions, credits, and exclusions. Trump is interested in simplifying the tax return process and reducing the money spent by the U.S. government to manage that process. While this may reduce the complexity for everyone during tax season, it could increase overall taxes paid per individual.
How would President-Elect Trump address qualified dividends and capital gains taxes?
Republican tax policy experts have recommended setting the capital gains tax rate at a flat 15% and eliminating the Net Investment Income Tax of 3.8% on passive income. Capital gains are currently taxed at 0%, 15%, or 20% depending on income, so reducing and simplifying this rate could make filing taxes easier for everyone. This may not benefit those currently paying 0% though, as it’s unclear if that would still be an option for those with lower income. The other downside of this change is that it may influence more taxpayers to liquidate investments at the discounted rate to make investments elsewhere. If the policy is enacted, we may see a large shift in investments initially.
In our next post, we’ll talk about Trump’s plans for estate taxes, family tax credits, and more. Stay tuned and we’ll keep these articles updated as the Trump administration announces plans and policies. To better understand how these policies will affect your taxes, schedule an appointment with our CPAs.
