What’s Next? Evaluating Potential Tax Impacts Post-2024 Election

With President-Elect Donald Trump set to return to the White House in 2025, federal tax policy is likely to see significant shifts. A projected Republican-controlled Congress may pave the way for swift legislative changes, including potential updates to the Tax Cuts and Jobs Act (TCJA) of 2017.

Here's a look at the possible tax policy changes for businesses and individuals in the coming years.

Revisiting the TCJA: What’s at Stake?

The TCJA introduced sweeping reforms, including:

• A corporate tax rate of 21%,
• Lower individual tax rates,
• A higher standard deduction,
• An increased Child Tax Credit,
• A qualified business income deduction for pass-through entities, and
• Doubling the federal gift and estate tax exemption.

While many corporate tax provisions were permanent, numerous individual tax benefits are set to expire at the end of 2025. Extending these provisions could be high on the legislative agenda, though it comes with a hefty price tag—estimated by the Congressional Budget Office at $4.6 trillion over 10 years.

Potential Business Tax Changes

President-Elect Trump has proposed several initiatives aimed at supporting U.S. businesses:

• Further Corporate Tax Reductions: Trump has suggested lowering the corporate tax rate to 15% for companies manufacturing in the U.S.
• Enhanced Deductions for Investments: Businesses may see a return of 100% first-year bonus depreciation for qualifying capital investments, as well as the immediate expensing of research and development costs.
• Boosting Sec. 179 Expensing: The cap for small business equipment investments, currently at $1.22 million for 2024, could double under his proposals, potentially reducing barriers for growth.

Individual Taxpayer Considerations

For individual taxpayers, several proposed changes could have widespread implications:

• State and Local Tax Deduction Cap: Trump may seek to repeal the $10,000 cap on state and local tax deductions, benefiting taxpayers in high-tax states.
• Tax Exemptions for Specific Groups: Proposals include exempting tips for service workers, overtime pay, Social Security benefits, and even offering federal tax exemptions for police officers, firefighters, military personnel, and veterans.
• Vehicle Loan Interest Deduction: Trump has floated a deduction for interest on car loans for vehicles made in the U.S., which could stimulate domestic auto sales.
• Disaster-Related Deductions: A proposed deduction for home generator costs tied to hurricane relief could retroactively apply to purchases made after September 1, 2024.

Trade and Tariff Impacts

Trump's tariff plans include a baseline 10% tariff on imported goods and potentially steeper tariffs on goods from China and Mexico. While these measures aim to bolster domestic production, U.S. consumers and businesses may face higher costs. The ripple effect of these tariffs could lead to increased prices across various sectors, sparking debate among policymakers and industry leaders.

Changes to the Inflation Reduction Act (IRA)

Trump has pledged to cut unspent funds from the IRA’s clean energy tax credits, though resistance within the GOP suggests compromises may be necessary. Restricting eligibility for these credits, rather than a full repeal, could be a more likely outcome.

Looking Ahead

The year 2025 promises to be a pivotal one for tax policy. In addition to potential extensions of the TCJA, lawmakers will be addressing expiring provisions and other pressing tax matters. While campaign promises don’t always result in legislative action, taxpayers should remain vigilant about potential changes that could affect their financial planning.

At Whittlesey, we are closely monitoring these potential tax developments and their implications for businesses and individuals. Our team is committed to providing proactive, informed guidance to help you navigate the evolving tax landscape. If you have any questions or concerns, I encourage you to connect with our experienced tax advisors. Together, we can develop strategies to position you for success as these changes take shape.