Written by: Emily Guthman
Donald Trump’s victory in the U.S. presidential election, along with Republican control of the House and Senate, will have significant implications on tax policy as the expiration of the Tax Cuts and Jobs Act approaches next year.
The Tax Cuts and Jobs Act, enacted by Donald Trump in 2017, was a comprehensive tax reform policy affecting all taxpayers. It is set to expire at the end of 2025 – however, a Trump presidency greatly increases the odds that Republican lawmakers will be able to push through an extension of the 2017 tax law.
Republican lawmakers will look to preserve as much of the Tax Cuts and Jobs Act as possible, including making permanent many of its individual income and estate tax provisions, such as:
- Individual Income Tax Rates: Preserving a maximum rate of 37% on income over $600,000 for married filing joint taxpayers and $500,000 for single taxpayers. Pre-2018, the top rate was 39.6%.
- Standard & Itemized Deductions: Maintaining the increased standard deduction of $24,000 for married filing joint taxpayers and $12,000 for single taxpayers. For taxpayers who itemize their deductions, the limit of the mortgage interest deduction and elimination of miscellaneous deductions would remain in effect. However, Donald Trump has expressed supporting the removal of the $10,000 cap on the state and local tax deduction.
- Alternative Minimum Tax (AMT): The AMT is a tax system intending to prevent a taxpayer with substantial income from avoiding tax by using various exclusions, deductions and credits. An extension of the Tax Cuts and Jobs Act would preserve the increased income threshold at which AMT exemptions phase out, which decreased the number of taxpayers who are subject to the AMT.
- Qualified Business Income (QBI) Deduction: The QBI deduction allows certain S-Corporation, Partnership and LLC owners a deduction of 20% of business income. Without an extension of the Tax Cuts and Jobs Act, this deduction would expire in 2026.
- Estate & Gift Tax Exemption: For 2025, the federal estate and gift tax exemption is set at $13.99 million per individual taxpayer, or $27.98 million for married couples. Without an extension of the Tax Cuts and Jobs act, this amount is scheduled to revert to approximately $5 million (indexed for inflation) per individual.
Donald Trump has also made campaign trail promises to exempt tips, social security benefits, and overtime pay from individual income tax.
Extending the 2017 tax law would also have significant impacts for corporate taxpayers such as:
- Corporate Tax Rates: Maintaining a flat 21% corporate rate. Before the Tax Cuts and Jobs Act took effect, corporate tax was a graduated structure with a top rate of 35%. Donald Trump is also proposing a new 15% rate for domestic manufacturers.
- Depreciation: The Tax Cuts and Jobs Act allowed companies to expense 100% of the cost of many capital improvements in year one. This deduction began phasing out after 2022 and the rate is now 60% in 2024. An extension of the Tax Cuts and Jobs Act would reinstate the 100% bonus depreciation deduction.
- Research & Development: Restoring the allowance of immediate expensing of qualified research and development costs. Trump has also expressed interest in enhancing the research & development tax credit by increasing the credit rate or expanding the types of expenses that qualify.
A Trump-led administration could also lead to challenges for the Internal Revenue Service (IRS), resulting in claw backs of IRS funding that was provided by the Inflation Reduction Act to improve operations and increase modernization and enforcement efforts.
For more information, please reach out to a member of our Private Client Group team.
