- November 14, 2024
- Posted by: Gavtax
- Category: U.S Taxes and Businesses
As Donald Trump steps closer to possibly leading the nation again, his extensive tax promises from the campaign trail are generating buzz. With the key elements of his 2017 Tax Cuts and Jobs Act (TCJA) set to expire soon, his re-election brings a fresh opportunity for major tax policy shifts that could impact corporations, individuals, and tax professionals alike. Here’s a rundown of the main points and what they could mean for you.
Keeping (or Expanding) the TCJA Benefits
One of Trump’s key campaign pledges has been to extend the provisions of the TCJA or even make them permanent. According to Brian Newman, a tax partner at CohnReznick, this could mean tax relief for many, especially in the corporate world. Trump aims to further reduce the corporate tax rate to 20% or even as low as 15% for U.S.-based manufacturers, a move that’s likely to stir debate in Congress.
Boosting Corporate Investments with Bonus Depreciation
Trump also plans to restore 100% bonus depreciation for businesses. The current rate, set to drop to 20% in 2024, has created uncertainty. By bringing it back to 100%, Trump hopes to stimulate more investments, with tax planners advising clients to strategically time their purchases and asset placements for maximum benefit.
Potential Removal of the SALT Cap
A particularly contentious part of the TCJA was the $10,000 limit on state and local tax (SALT) deductions, which Trump now aims to eliminate or increase. Lifting this cap could especially benefit taxpayers in high-tax states, allowing them more flexibility in managing property and local tax payments.
Revamping R&D and Business Interest Deductibility
The TCJA requires businesses to capitalize R&D costs over five years, a rule Trump wants to reverse, allowing these expenses to be deducted in the year they’re incurred. Additionally, he’s considering revisiting the Section 163(j) limit on business interest, potentially allowing for an EBITDA calculation that would allow companies to add back depreciation and amortization, thereby lightening the tax load for many businesses.
Further Tax Breaks for Individuals and Workers
Trump’s proposal also includes removing taxes on income from tips, Social Security, and overtime, and eliminating taxes on the earnings of firefighters, police officers, and military personnel. This might encourage reclassification of income, so careful guidelines will be necessary.
Addressing Stock Buyback Taxes
In response to the current 1% excise tax on stock buybacks, Trump has proposed eliminating this tax altogether—a stark contrast to the Biden administration’s plan to increase it to 4%. This is likely a welcome prospect for public companies looking to maximize shareholder value through buybacks.
Protecting the Qualified Business Income Deduction
The 20% deduction on certain income, primarily benefiting small businesses and non-professional services, may also be up for extension or permanence under Trump’s plan. For those eligible, this deduction could continue to be a valuable tax break, allowing them to retain more of their business income.
Doubling the Standard Deduction
By doubling the standard deduction, Trump’s plan could mean fewer people itemizing their taxes. While simplifying taxes, this could affect charitable donations since taxpayers might be less inclined to donate without itemizing.
New Tax Breaks on Car Loans and Caregiving
Trump has suggested various other credits, like deductions on interest for those buying U.S.-made cars and tax credits for family caregivers. These policies reflect a growing trend toward supporting specific American-made goods and offering relief to those providing at-home care for family members.
The Potential Impact on States
With so many federal tax changes, states that rely heavily on income tax may feel the pressure. Often, states may choose to “decouple” from federal provisions, keeping certain taxes intact locally even as federal changes phase them out. This decoupling could lead to a mix of tax regulations, depending on where you live.
The Bottom Line: Congressional Control Matters
Of course, while Trump’s ideas are ambitious, they’ll need congressional support to materialize. As Jonathan Traub, a tax policy leader at Deloitte, pointed out, tax laws originate in Congress, so bipartisan cooperation (and likely some compromises) will be essential to see any of these changes passed.
As the 2024 presidency unfolds, taxpayers, business owners, and tax professionals alike will be watching closely. With various interests and priorities at play, the future of U.S. tax policy is set to be as complex as ever, leaving us to wait and see which elements will truly come to life.