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If Donald Trump is re-elected as president and assuming Congress cooperates, there will be significant changes in personal and business life. income taxes. The main goal of Trump's tax policy is to Tax Cuts and Jobs Act (TCJA) permanent, which was approved during his first term. Some parts of the TCJA have already expired or are being phased out, and most other provisions will expire by the end of 2025.
Supporters of these tax cuts say they drive economic growth. Opponents are concerned about the impact on government spending and budget deficits. Regardless, below are ten of the most important ways your taxes could be affected by a Trump re-election.
Related: 10 tax law changes you need to know to save your business thousands of dollars
1. Individual tax rates can be reduced
If the TCJA is made permanent, individuals earning more than $500,000 will be taxed at a top rate of 37%. If the TCJA expires, those earning over $426,700 will be taxed with one the highest rate of 39.6%.
2. “Standard” individual tax deductions will remain high
The TCJA increased the individual tax deduction — used by people who don't itemize their deductible expenses on their tax returns — to $12,400 for individuals and $24,800 for those filing joint returns. If it expires, these discounts will do turn back at their previous levels of $6,200 and $12,400, respectively. However, personal exemptions for taxpayers, their spouse and each of their dependents — which were up to $4,050 — could be brought back, and that would offset some of the increased tax cost.
3. Corporate tax rates would go even lower
The TCJA lowered the corporate tax rate from 28% to 21% for those businesses that file C-Corporation tax returns. Trump has said he wants to lower this rate to 20%, which would put the US one of the lowest corporate tax burdens in the world.
4. The deduction of tax on qualified business income (QBI) continues.
More than 90% of US businesses are considered pass-through entities. The owners of these firms generally file S-Corporation or partnership tax returns, and the net income from the business flows on the owner's tax return and is taxed at individual rates. The TCJA introduced a significant tax deduction—the qualified income tax deduction (QBI)—that allowed many of these businesses to up to 20% off their company income before rolling over to their individual returns. Trump wants to make this tax cut permanent.
5. Exemptions from wealth taxes will remain at their current levels
with more than half of small business owners who are over 50, succession and estate planning have become an important issue. For those seeking to pass assets to their heirs, they will face a federal estate tax rate of 40%. However, the TCJA increased the exclusion for assets that would be subject to this tax to over $11.2 million for individuals and $24.4 million for persons who are married. While the rate will remain the same if the TCJA expires, those exemption amounts will drop $5.6 million and $11.2 million, respectively. This would be in addition to estate taxes imposed by many states.
6. Research and development expenses are again deductible in the first year
In 2022, the ability to deduct research and development expenses (which include certain materials, compensation, and outside contractor costs used to develop new products or improve existing products) in their first year expired. This, unfortunately, forced those businesses taking advantage of this deduction to capitalize and then amortize those expenses over five years, which spread the tax benefits of those costs. If made permanent, the TCJA would once again allow business owners to take these deductions in their first year.
7. Major discounts will be returned for capital equipment purchases
Similar to research and development expenses, businesses enjoyed significant deductions for capital expenditures such as machinery, equipment, computer equipment, machinery and other equipment in the first year those assets were placed in service. These discounts have started to goes away gradually but would be reinstated under Trump's tax plan.
Trump has also announced his intention to pursue two other tax reforms, though details are scarce at this time.
8. No more taxes on tip income
The first is about tipping income, which Trump has proposed to do non-taxable. This would have far-reaching effects not only on service workers, but also on how small businesses potentially pay their workers, with the incentive to encourage more tipping from customers and less out-of-pocket payroll compensation theirs.
9. More fees
Tariffs are taxes that businesses pay to import goods and ultimately end up as higher costs for consumers. Under a Trump administration, a base fee of 10% would be imposed on all imports, with a 60% fee. charged by Chinese goods.
Expansion of 529 plans
529 plans have been a popular way for individuals to save money after taxes — and grow it tax-free — as long as the funds are used for higher education and private and religious school education. Trump would expand using 529 funds so they can be used for homeschooling.
The bottom line is that Trump's tax positions lean heavily toward lower taxation for both businesses and individuals, which he believes will spur economic growth. This increase would then generate more tax revenue for the government. However, his policies could result in significant deficits if this growth does not occur.