Episode 451: Tax Planning Post 2024 Presidential Election

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Election season is behind us. The U.S. has a new incoming president and likely a new tax philosophy for the country. That means it’s time for taxpayers to review their tax planning strategies and position themselves for potential changes to the tax code.

Starting in 2025, the Republicans will control the executive branch, along with both parts of Congress, albeit with a tight margin in the House that may be an obstacle to major tax-related changes. Regardless, there are certain policies that tax experts are preparing for, including the Hap May legal team.

The Tax Cuts and Jobs Act – What to Expect

During President Donald Trump’s first term in office, his signature tax-related piece of legislation was the 2017 Tax Cuts and Jobs Act (TCJA). The TCJA made many major changes to the tax code that are still in effect today, as most of the relevant provisions are set to sunset (expire) at the end of 2025. One provision that will remain is the corporate tax rate, which was permanently set to 21 percent following the TCJA’s passage.

However, if another tax bill isn’t passed prior to 2026, the following tax provisions are set to revert back to their 2017 standards:

• Estate taxes – The TCJA doubled the estate tax exemption from around $6-7 million to about $14.3 million. In other words, an estate owner can currently leave $14.3 million in assets from their estate to their heirs before estate taxes are assessed. If the TCJA provisions expire without a replacement, the estate tax threshold will return to its $6-7 million mark.
• State and local tax deduction (SALT) – The SALT deduction allows taxpayers to deduct a portion of their state and local taxes (such as property and sales taxes) from their federal income tax return.The TCJA imposed a $10,000 cap on the SALT deduction, lowering the amount that (typically wealthy) taxpayers could deduct from their federal income taxes. If the TCJA expires, this cap will be lifted.
• Marginal income tax rates – The TCJA made some slight but significant adjustments to marginal tax rate brackets. The top marginal tax rate in 2017, for example, was 39.6 percent, which the TCJA lowered to 37 percent. If the TCJA expires, tax rates will revert to the 2017 levels.
• Small business income deduction – The TCJA implemented a 20 percent tax deduction for qualified pass-through income. S-corporations, partnerships and sole proprietorships were the beneficiaries of this deduction, which will be eliminated with the 2025 TCJA sunset.
• Standard deduction – The standard deduction is the simplified flat deduction that most taxpayers take when filing taxes. The TCJA increased the standard deduction from $6,500 to $12,000 for individuals, and from $13,000 to $24,000 for those that are married and filing jointly. The TCJA also eliminated personal exemptions. If the TCJA expires, the deduction and personal exemption amounts would revert back.
• The Child Tax Credit – The Child Tax Credit was increased from $1,000 to $2,000 for each child under 17 in the household under the TCJA. The maximum refundable portion of the credit was increased from $1,000 to $1,400 per child and was indexed to inflation. Further, the TCJA increased the income limits before phasing out the Child Tax Credit. These are set to revert back to the 2017 standard once the TCJA sunsets.

It’s likely that with President Trump’s re-election the above provisions will be extended with the passage of a TCJA “part two” piece of legislation.

What Might Interfere with the Republican’s Post-Election Tax Approach?

There are reasons to believe that both parties would want to avoid a TCJA sunset. The provisions contained in the act benefits a number of constituencies, and allowing the TCJA to expire without an alternative would have potentially serious political blowback for Republicans and Democrats. As such, it’s safe to expect that a new tax law of some kind will be passed in 2025.

It’s also safe to expect that the new tax law will look a great deal like the old one – Trump has even said as much in interviews – but passing the law will mean overcoming a zero-room-for-error margin in the House. As some blue state Republicans may be interested in lifting the SALT cap (which would impact states with a high state or local income tax), there may be contentious negotiations ahead for Republicans behind the scenes.

If You Need to Update Your Tax Planning Tactics, Our Team Can Help

Although tax experts have a general idea of what the next four years will hold from a tax perspective, politics are unpredictable as a rule. That’s why if you’re reviewing your tax planning strategies, it’s best to do so with a tax planning expert. With a professional tax and business attorney providing guidance on your tax planning, you’ll be best positioned for 2025 and beyond.

By Harold "Hap" May, P.C. on December 18, 2024   /   The Legal Play Podcast   /   Leave a comment