How the Election Results Could Change Your Taxes Forever!

Now that the Republicans hold the reins of power in the White House, Senate, and House of Representatives, the stage is set for a major overhaul of federal tax policy. What does this mean for you and your wallet?

First and foremost, many key features of the Tax Cuts and Jobs Act (TCJA)—Donald Trump’s crowning achievement during his first term—are on track to expire by the end of 2025. With newfound control, the GOP is poised to extend most of these provisions.

Additionally, the former president has put forth a slew of tax reform ideas throughout his campaign. Here’s a sneak peek at what changes could be coming down the pipeline:

Business Taxes

Striking changes are in store for businesses, including:

Corporate Income Tax Rates: The president-elect is eyeing a cut to the corporate tax rate from 21% to 20%, with an even sweeter deal of 15% for U.S. manufacturers.

Research and Development (R&D) Expenses: Proposed changes aim to enhance R&D credits and eliminate the current requirement to capitalize and amortize R&D costs. This shift would allow businesses to deduct these expenses immediately when they occur.

Sec. 199A Qualified Business Income (QBI) Deduction: The beloved 20% deduction that benefits sole proprietors and pass-through entities is set to vanish at the end of 2025. However, the chances of it being made permanent are looking promising.

Bonus Depreciation: Currently at 60%, this deduction is slated to decrease to 40% in 2025 and slide further to 20% in 2026 before disappearing entirely. One bold proposal is to restore it to a full 100%!

Individual Taxes

Tax changes are also on the horizon for individuals, including:

Expiring Provisions of the TCJA: Among the provisions under threat are lower individual tax rates, a boosted standard deduction, and a higher estate tax exemption. The president-elect aims to make these tax cuts permanent while also addressing the contentious $10,000 cap on the state and local tax deduction.

Individual Taxable Income: The president-elect has floated the idea of scrapping income and payroll taxes on tips for hospitality workers and exempting overtime pay and Social Security benefits from taxation.

Child Tax Incentives: There’s talk of increasing the current cap on the Child Tax Credit of $2,000 per qualifying child, although no formal plans are on the table yet.

Electric Vehicle Credit: In a surprising move, the president-elect has mentioned he might eliminate the electric vehicle tax credit. If you’ve been eyeing an electric car, now might be the time to act—before the clock runs out at the end of 2024.

Housing Incentives: While specifics are scarce, the president-elect has hinted at potential tax breaks for first-time homebuyers. The Republican platform emphasizes reducing mortgage rates by tackling inflation and cutting red tape, along with tax perks for new homeowners.

Tariffs

Expect a shake-up in trade policy, as the president-elect has proposed increasing tariffs on imports. He suggests implementing a baseline tariff of 10% to 20% on most goods, a staggering 60% tariff on imports from China, and a hefty 100% tariff on vehicles coming in from Mexico.

How Will You Be Affected?

The fate of these extensions and reforms rests in the hands of Congress. With slim margins in the Senate and House, passing certain tax law changes may prove tricky, particularly those that lack broad Republican support. So, stay tuned—your financial future could be about to change!