Trump and Taxes - What to Expect

 Posted on February 07, 2025 in Tax Controversy

In 2017, the Tax Cuts and Jobs Act (TCJA) was introduced. This legislation made significant changes to the tax code, and its provisions affected taxpayers in almost every bracket of society. However, many of the changes enacted by the TCJA are set to expire at the end of 2025, and many people find themselves with anxiety in the face of possible tax increases for the following year. This article will walk through the existing provisions that face possible changes during the Trump 2025 presidency, as well as other proposed initiatives that taxpayers should keep an eye on.

Tax brackets and standard deductions

One of the most discussed changes made to the tax code through the TCJA was the lowering of rates for almost every tax bracket, with reductions ranging from 2% to 4% for different brackets of income. A full table with these percentages can be found in the Tax Policy Center’s website, here.

Another wide-sweeping change that was made under TCJA was the elimination of personal exemptions along with an increase of the standard deduction, which was increased to $15,000 for individuals and $30,000 for married couples. These changes simplified tax returns for many filers who lacked expertise in the nuances of the tax code and therefore may have missed personal exemptions that would have applied to them.

President-elect Trump has not announced any plans to extend these provisions in the upcoming year, and absent an act from Congress, these brackets and deductions will revert to their pre-TCJA rates at the end of 2025.

Child Tax Credit

The TCJA raised the maximum child tax credit from $1,000 to $2,000. In an official statement released by the House Committee on Ways and Means, Chairman Jason Smith stated that he intends to fight to keep the Child Tax Credit in its current state, furthermore, during his campaign trail, the President-elect proposed increasing this credit to $5,000. Families with children should closely monitor these discussions, as they could significantly impact their tax benefits.

State and Local Tax deductions

State and Local Tax (SALT) deductions allow taxpayers to deduct property taxes, sales taxes, and state or local income taxes from their federal income taxes. The TCJA introduced a cap on SALT deductions to a maximum of $10,000.

During his 2024 campaign, Donald Trump announced his intent to "get SALT back", hinting at a plan to eliminate the current cap and restore SALT deductions to their previous state. Later, on December 12, 2024, Stephen Moore, a member of Trump’s economic advisory transition team told Bloomberg that they discussed increasing the cap to $20,000 instead of scrapping it entirely as Trump had previously hinted. Taxpayers in states with higher state income and property taxes would benefit from either of these announcements.

Qualified business income deductions

Under the TCJA, owners of sole proprietorship LLCs or pass-through entities (such as partnerships, LLCs that are treated as partnerships for tax purposes, and S corporations) can deduct up to 20% of their business income against adjusted gross income. This is called a Section 199A deduction.

The Congressional Research Service reported that there appears to be bipartisan support for extending the deduction beyond 2025, but the debate on its effectiveness and cost to the federal budget makes this topic an undecided issue that business owners should look out for.

Corporate Income Tax

During his campaign for the presidency, Trump stated that he intended to decrease the corporate tax rate from 21% to 20%, and as low as 15% for companies that manufacture in the United States. However, much like Section 199A deductions addressed above, this measure will face significant scrutiny due to its cost and lack of evidence on its effectiveness.

Income tax exemptions

Trump proposed to add exemptions on income tax for tips, overtime pay, service and hospitality workers, and social security benefits. While these proposals have seen support from both parties, experts say that such a measure is unlikely to benefit most tipped workers (approximately 2.5% of the labor market according to a study performed by Yale University), since an estimated 40% of them make so little money that they are already exempt from income taxes. Furthermore, without proper guardrails, this exemption may be subject to exploitation from nefarious actors who may shift their compensation to a tipping model to avoid income taxes on those earnings.

Because of its prominence in the campaign trail --being highly publicized in his rallies in key swing states with large service and tip-heavy income worker populations such as Nevada-- President-elect Trump is more likely to want to push for this initiative despite Congress disapproval.

Conclusion

With both houses of Congress under Republican control in the upcoming year, the odds of these tax cuts (both those that were enacted as part of the TCJA and any new proposed cuts) remaining in place are higher than usual. However, given the constant debate on the ever-increasing Federal budget deficit (which the Committee for a Responsible Federal Budget reported could increase by as much as $5 trillion should these cuts be extended), Congress will likely be selective about which provisions to keep and which to scrap. Taxpayers should actively inform themselves about how these policies will change in the upcoming year, as well as prepare for changes in their usual tax-season process. For official information on changes to the tax code, taxpayers should regularly consult the IRS news releases page.