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Getting the right tax advice and recommendations is essential in the complex tax world we live in. The Kiplinger Tax Letter helps you stay up to date with the latest news and forecasts, with advice from our highly experienced team (Get a copy of The Kiplinger Tax Letter or subscribe). You can only download all the recommendations by subscribing to the Fiscal Letter, however, we will publish extracts online, and here is one such example. . .
Make no mistake about it: Taxes were on the ballot in the November elections, and the tax stakes are higher than usual. That’s because much of former President Donald Trump’s 2017 tax reform legislation is expiring at the end of 2025.
Most provisions affecting Americans and estates in the Tax Cuts and Jobs Act of 2017, such as reduced tax rates on non-public sources of income, higher flat-rate deductions, higher tax credit for children, $10,000 limit on state and local taxes. deduction, and the increased lifetime exemption from estate and gift tax will automatically end after 2025.
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Unless lawmakers act, those provisions will revert to the regulations in place in 2017. With congressional approval, the next president will have to deal with the expiring tax provisions.
Let’s take a look at how Donald Trump needs to approach this scenario and look at other tactics he needs to replace the existing tax system. I accumulated those proposals from speeches he gave during the crusade campaign, interviews he gave, his social media posts, the GOP 2024 platform, and other sources.
First and foremost, Trump wants to make the 2017 tax breaks permanent and take it further with even lower tax rates for individuals, although he hasn’t given details, such as whether he would reduce the current top 37% income tax rate.
Rumors abound that Trump would push for a top long-term capital gains rate of 15%, down from 20% now, but he hasn’t confirmed this. The Project 2025 initiative, discussed below, proposes a top 15% long-term capital gains tax rate.
Trump supports his vice presidential pick, J. D. Vance, to offer parents an additional child tax credit of $5,000 per child, and a 250 percent addition to existing tax credits of $2,000 per child.
Hotels and eating places and other tipped employees would be in for a treat if Trump gets his way. Proposes that tips be exempt from taxes.
Another organization that Trump needs to take advantage of is overtime workers. He said at a rally that he was in favor of tax-free overtime.
Trump has also proposed eliminating the income tax source of Social Security benefits. Under existing law, Social Security beneficiaries are taxed at 85% of their benefits, depending on the amount of their provisional source of income. Making Social Security benefits tax-free would attract retirees, but it would also deal a blow to the Social Security Trust Fund, from which benefits are paid.
U. S. citizens living in the country may benefit from tax adjustments under Trump. The United States taxes its citizens on their international source of income, regardless of where they live. Expats can mitigate some of the threat of double taxation through foreign tax credits and other exemptions, such as the foreign sources of income exclusion and the foreign housing exclusion.
Trump says he supports ending the double taxation of Americans living overseas. We don’t know exactly what this means. A lobbying group representing U.S. expats has been pushing for years for a regime that taxes expatriates on U.S. income but not foreign income. They also want the U.S. to stop taxing U.S. income of expats who live in countries that tax their U.S. income.
At a crusade in Detroit, Trump proposed allowing Americans to deduct the interest they pay on auto loans. The non-public interest deduction was eliminated in 1986, and now Trump appears to need to partially repair it. He did not specify whether this proposed deduction would apply only to those indexed on Schedule A of the 1040, or whether he would make it a tax deduction above the line requested on page 1 of the 1040.
Trump says he would use tax incentives and tax credits to promote homeownership. And in an effort to win over voters in storm-damaged areas of the country, he promises a tax deduction for the cost of turbines purchased between September 1, 2024 and August 31, 2025.
Surprisingly, it turns out that Trump needs to either increase the $10,000 limit on the state and local tax (SALT) deduction or eliminate that limit entirely. Currently, taxpayers who itemize on Schedule A of Form 1040 can deduct their SALT deductions up to a maximum of $10,000. After 2025, unless lawmakers act, taxpayers will have to deduct the full amount of state and local taxes they pay, just as they did before 2018.
Trump’s economic policy advisers oppose any increase to the $10,000 cap and are urging Trump to lower the monetary cap or to end the SALT deduction altogether. Meanwhile, a number of Capitol Hill Democrats and Republicans from high-tax states, such as New Jersey, New York and Illinois, are pushing for an increase to the $10,000 cap.
Trump floated the concept of getting rid of the $10,000 limit, which would allow stores to fully rededuct state and local taxes. Removing the cap would provide disproportionate advantages to higher-income taxpayers and charge the government with significant gains that Trump and Congress would need to use for other proposed taxes. Cuts.
When it comes to estate taxes, the 2017 tax reform law nearly doubled the federal gift and lifetime estate tax exemption. The estate tax exemption amounts to $13. 61 million for other people who died this year. After 2025, this figure will be minimized to the 2017 amount, adjusted for inflation. That’s about $7 million.
The more sensible 40% estate tax rate was not replaced in the 2017 law. Since Trump says he needs to make the tax cuts in the 2017 law permanent, we believe this promise would also come with a higher exemption from the tax on gifts and life estates. It remains to be seen whether Trump needs further relaxations.
Regarding corporate tax, Trump supports reducing the existing corporate tax rate from 21% to 20%. He also said he would reduce it again to 15%, but only for corporations that make their products in the United States. Trump did provide main points about how this would work.
Trump has often said he wants a 10% (or 20%) across-the-board tariff on imported goods and a 60% tariff on goods imported from China. Although the tariffs would raise revenue for the U.S. government, they would also cause the prices of goods to go up for consumers.
Trump needs to maximize the blank power tax credits for businesses and individuals, which were passed under the Inflation Reduction Act of 2022.
He would bring back 100% first-year bonus depreciation and allow more expensing. And he would allow businesses to claim research and development tax deductions in the year the expenses are incurred, rather than requiring firms to amortize the costs over 5 years (or 15 years).
When Trump was president, he promised an end to the “Johnson Amendment.” And he repeated that vow again on the campaign trail ahead of the 2024 elections.
This 70-year-old federal tax law prohibits churches, charities, and other 501(c)(3)-exempt organizations from participating in political campaigns, whether for or against a candidate running for office. a charge. Republican lawmakers have tried for years to get rid of the statue, but without success.
We can’t talk about Trump’s tax proposals without also mentioning Project 2025. This policy blueprint, which was designed for the next Republican administration, was spearheaded by the Heritage Foundation and includes a wish list of proposals desired by conservative-leaning think tanks.
There’s a lot in there on taxes, including the following proposed changes:
This first made its impression in Kiplinger’s tax letter. Helps you navigate the complex world of taxes by keeping you up to date on new and ongoing adjustments to tax laws, offering tips to reduce taxes for your business and individuals, and forecasting what the White House and Congress could use. good with taxes. Get a free issue of The Kiplinger Tax Letter or subscribe.
Joy is an experienced tax attorney and CPA with an L. L. M. in Taxation from New York University School of Law. After many years working for giant law and accounting firms, Joy saw the light and now puts her education, legal experience, and extensive knowledge of federal tax law to work writing for Kiplinger. He writes and edits The Kiplinger Tax Letter and contributes articles on federal taxes and retirement to kiplinger. com and Kiplinger’s Retirement Report. His articles have been picked up through the Washington Post and other media outlets. Joy has also appeared as a tax expert in newspapers, television and radio to discuss federal tax developments.