As tax experts, we understand that changes in leadership can result in alterations in tax policy, impacting everything from deductions and exemptions to inheritance taxes and company laws. With President Donald Trump's recent re-election, we may see changes to tax policy based on previous government actions and new plans. Understanding these changes and preparing ahead of time may lead to significant tax savings and financial efficiency for both individuals and corporations.
In this post, we'll look at probable future tax policies, such as planned extensions to the Tax Cuts and Jobs Act (TCJA) and additional deductions and exemptions. Keep in mind that, although these regulations are not yet etched in stone, we are here to give our customers with information and preparedness techniques. As usual, please contact our office if you have any concerns about tax preparation or its possible effect on your position.
1. Extending the Tax Cuts and Jobs Act's (TCJA) provisions for individuals
Itemized Deductions: This might imply the continued suspension of some itemized deductions, such as the phase-out of the deduction limit for certain goods, as well as restrictions on deductions for personal casualty losses.
Charitable donations: The higher percentage ceiling for financial donations to public charities (from 50% to 60%) may be maintained, creating more generous prospects for tax savings via charitable giving.
Home-Related Deductions: The qualifying dwelling interest deduction may vary, but restrictions on home equity interest deductions remain.
Student Loan aid: Extended provisions might keep exemptions for some student loan discharges and employer-provided student loan aid, allowing borrowers to manage debt while receiving some tax relief.
How to Prepare: Individuals might begin by assessing their deductions and contributions, particularly if charity giving or homeownership are part of their financial plan. Planning around these enhanced rules may allow you to maximize deductions and lower taxable income.
2. Changes in Exemptions and Exclusions
Trump's ideas include extending some exclusions and exemptions, with the goal of simplifying tax computations and providing assistance to certain income streams. Here are a few locations where changes may occur:
Social Security Benefits, Tips, and Overtime Pay: A proposed exemption for these income streams might lower taxable income for many taxpayers, particularly those approaching retirement or working in sectors that need overtime.
Increased Estate and Gift Tax Exemptions: This reform would increase the threshold for estate and gift tax obligations, allowing high-net-worth individuals and families to pass on money without incurring a hefty tax burden.
How to Prepare: Consider include these possible exclusions in your income planning approach. For high-income individuals, this may include amending estate planning and investigating alternative asset transfer techniques to optimize possible tax benefits.
3. Removing the SALT Cap
One of the TCJA's most controversial provisions was the $10,000 limit on state and local tax (SALT) deductions, which many claim unfairly affected individuals in high-tax jurisdictions. Trump's new policy plans include completely eliminating this limit, enabling taxpayers to deduct the whole amount of their state and local taxes from their federal taxable income.
How to Prepare: If the SALT limit is removed, taxpayers in high-tax states may see a significant drop in taxable income. If this change takes effect, you may find it useful to adjust your withholding and reevaluate your quarterly tax calculations.
4. Business Deductions Restored
For company owners, numerous deductions that have been phased down or restricted may return:
100% Bonus Depreciation: This popular provision, which lets firms to deduct the full cost of qualified assets in the year they are brought into operation, is being phased away. A prospective extension would enable company owners to continue claiming full deductions, boosting cash flow and encouraging investment in new equipment.
R&D Expensing: Returning this deduction in full may benefit firms that engage extensively in innovation by enabling them to expense R&D expenditures immediately rather than amortizing them over many years.
Interest Deduction (EBITDA-Based): Returning to a more advantageous interest expense deduction based on EBITDA (earnings before interest, taxes, depreciation, and amortization) may allow more firms to deduct interest expenses, particularly in capital-intensive sectors.
How to Prepare: Business owners should analyze the possible cash flow advantages of the reinstated deductions and plan their buying and financing strategies appropriately. Speaking with our office will help you choose the best time to buy assets and make other large purchases.
5. New Import Tariffs
A major addition to Trump's tax plans is a planned 20% uniform tariff on all US imports, which may have an impact on firms that depend on imported products and supplies. While this tax is largely intended to stimulate local manufacturing, it may raise expenses for enterprises that depend on international suppliers.
How to Prepare: Businesses with an international supply chain should now consider whether to source locally or cooperate with suppliers headquartered in the United States. This might offset the effect of rising import duties.
6. Additional potential deductions and credits
Several new measures attempt to give taxpayers with extra deductions and credits, including an auto loan deduction and expanded workplace perks, such as tax-free student loan payments. These laws may give relief for particular expenditure categories and lower taxable income for some individuals.
How to Prepare: These deductions may provide significant advantages, particularly for families with college expenditures and those managing high debts. Working with our specialists to integrate them into your tax strategy may result in significant savings.
Start planning now for any tax changes.
Navigating tax policy changes may be difficult, but preemptive preparation can make all the difference in maximizing advantages while reducing obligations. At our office, we keep up to date on anticipated tax changes to assist customers in making sound financial choices.
If you're wondering how these proposed tax changes may effect your personal or corporate taxes, we're here to assist. Contact our office now to discuss customized tax preparation methods that will keep you ahead of the curve.
