As Inauguration Day approaches, significant shifts in the tax landscape may be on the horizon, particularly concerning the provisions of the Tax Cuts and Jobs Act (TCJA) passed in 2017. The TCJA reshaped tax rates, deductions, and credits for both individuals and businesses, significantly influencing tax strategies and fiscal policies in the years since its enactment. With President Trump’s upcoming return to the Oval Office, we can expect ongoing debates and potential modifications to these provisions. This article explores key aspects of the TCJA that remain in effect, potential tax changes under the new administration, and their implications for taxpayers in the years ahead.
Key TCJA Provisions Currently in Place
The TCJA made substantial changes to the U.S. tax code, with several provisions set to expire or phase out after 2025 unless renewed. Here is a summary of the major provisions that are still in effect for the 2024 tax year:
- Standard Deduction: The standard deduction remains high — $14,600 for single filers, $21,900 for heads of household, and $29,200 for married couples filing jointly. This is nearly double the amount prior to the TCJA.
- Qualified Business Income Deduction (QBI): The 20% deduction for pass-through business owners continues, subject to certain income thresholds and restrictions. This remains a key benefit for owners of S-corporations, partnerships, or sole proprietorships.
- Bonus Depreciation: The TCJA allowed for 100% bonus depreciation on qualifying business property in its early years, but this is phasing out. In 2024, bonus depreciation will drop to 60% of the asset purchase price.
- Tax Rates: The TCJA lowered tax rates for both individuals and corporations. The top individual tax rate is currently 37%, down from 39.6%, and the corporate tax rate is set at 21%, reduced from 35%.
- Child Tax Credit: The TCJA increased the child tax credit to $2,000 per qualifying child under age 17, with $1,700 of that being refundable in 2024. A $500 non-refundable credit was also created for other dependents.
- SALT Deduction Cap: One of the more controversial provisions of the TCJA was the $10,000 cap on the state and local tax (SALT) deduction, which limits the amount taxpayers can deduct for state and local taxes, including income, sales, and property taxes. The cap on the SALT deduction has significantly impacted residents of high-tax states.
If the TCJA provisions are not extended after 2025, taxpayers could face increased liabilities, emphasizing the importance of proactive tax planning. With the 2024 election set to influence future tax policies, understanding potential changes under a new administration is crucial.
Possible Impacts of the 2024 Election Outcome
President Trump has outlined several proposed tax changes, focusing on tax relief and policies to stimulate domestic growth. Below are some potential changes and initiatives to keep an eye on following his return to office:
- Exempt Tax on Tips, Overtime, and Social Security: The Trump Administration has proposed eliminating tax on tips, overtime pay, and social security income. This would provide significant tax relief to impacted taxpayers.
- Increase in Child Tax Credit: One of Trump’s proposals is to increase the child tax credit from $2,000 to $5,000. This would be a major boost to families with children, especially those in lower and middle-income brackets.
- Renewal of 100% Bonus Depreciation: Under the first Trump Administration, there was a push to extend the 100% bonus depreciation for businesses. This provision would be a significant advantage for companies investing in capital assets, as it allows them to deduct the full cost of qualifying property in the year it is purchased.
- Itemized Deduction for Auto Loan Interest: If enacted, this provision would allow individuals to deduct interest on auto loans, which could benefit many middle-class taxpayers who have car loans.
- Removal of SALT Deduction Cap: The Administration has proposed eliminating the $10,000 cap on the state and local tax (SALT) deduction, which would benefit taxpayers in high-tax states who have been disproportionately impacted by the cap.
- Removal of R&D Capitalizing Requirement: The Administration is considering reversing the requirement for businesses to capitalize research and development (R&D) expenses. This change would allow immediate expensing of these costs, promoting innovation and reducing the financial burden on businesses.
- Lower Corporate Income Tax Rate: The Trump Administration has proposed reducing the corporate income tax rate to 20%, with a further reduction to 15% for companies that manufacture their products in the United States.
These proposed changes represent a significant shift in tax policy. While the specifics of these proposals will depend on the political climate and legislative negotiations, they highlight the direction the Administration aims to take.
What Does This Mean for Taxpayers?
Taxpayers should remain vigilant and be proactive as significant tax changes are likely to occur. These proposals, if enacted, will significantly affect tax planning for 2025 and beyond. Staying informed and reviewing your tax situation regularly will be essential to optimize savings and minimize liabilities. It is important to consult with a tax professional to stay ahead and make the most of these and other potential changes.
By Dylan Anderson, Sahaley DuPree, and Sam Goodine
