Unlocking Insights: What Trump’s 2017 Tax Cuts Teach Us Today
On December 22, 2017, President Donald J. Trump put pen to paper and signed the Tax Cut and Reform Bill in the iconic Oval Office. A moment that would reshape the economic landscape!
Brendan Smialowski | AFP via Getty Images
As we approach 2025, tax uncertainty looms large, with Congress gearing up to hash out President-elect Donald Trump‘s ambitious economic vision.
But here’s the exciting part: financial experts believe there are gold nuggets of wisdom for investors tucked away in Trump’s 2017 tax overhaul.
Trump made a bold promise on the campaign trail to extend the trillions in tax breaks from the Tax Cuts and Jobs Act, which transformed the financial terrain for both individuals and businesses.
He’s also proposed thrilling new ideas like eliminating taxes on tips, abolishing taxes on Social Security benefits for seniors, and removing the $10,000 cap on state and local tax deductions (SALT), among other bold proposals.
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While Trump’s agenda enjoys strong support from Republicans, the outcome of these proposals is still uncertain, particularly amidst rising concerns over the federal budget deficit. This uncertainty makes tax planning a bit of a puzzle.
Nevertheless, experts emphasize that there are valuable lessons to glean from Trump’s 2017 tax initiative.
Last-Minute Tax Strategies
If Congress doesn’t step in, a treasure trove of tax breaks from the TCJA will sunset after 2025. This includes lower tax brackets, increased standard deductions, a more generous child tax credit, and a more favorable estate and gift tax exemption.
With Republicans now holding the reins of the White House, Senate, and House, they’re eyeing a strategy called “reconciliation” to tackle these expirations head-on—a tactic that proved effective for enacting the TCJA in December 2017.
Prior to the law taking effect on January 1, 2018, savvy investors employed last-minute tactics, such as “accelerating itemized deductions” by prepaying property and state income taxes, according to the insights of certified public accountant Duncan Campbell, who leads Baker Tilly’s private wealth practice.
This strategy resonated particularly well with high earners in states like California, New Jersey, and New York, who were about to face a $10,000 cap on their federal SALT deduction.
Be Ready and Positioned for Changes
With a slew of tax law provisions on the table, many advisors recommend holding off on irreversible tax strategies until the ink is dry on any new legislation.
“I always prefer to stick with what we know is true rather than gamble on what might change in the future,” advises Ryan Losi, a certified public accountant and executive vice president of CPA firm Piascik.
“I always prefer to stick with what we know is true rather than gamble on what might change in the future.”
Ryan Losi
Executive vice president of Piascik
Over the past year, Losi urged clients who may surpass the estate and gift tax exemption threshold to consult with an attorney to explore strategies for minimizing taxable estates, especially if Congress doesn’t extend the higher limits post-2025.
Come 2025, the basic exclusion amount is set to climb to $13.99 million per individual, which allows for tax-free transfers of wealth both during one’s lifetime and at death. Should this exclusion expire, it will revert to 2017 levels, adjusted for inflation.
“You want to be ready and positioned” to finalize those estate planning documents if Congress does not extend the larger exemptions,” he emphasizes.
While extending the higher estate tax exemption may be more plausible under a Republican-led Congress, the last-minute changes of 2017 remind us that surprises can happen.
“There could be another unexpected gift from Trump this Christmas,” Losi quips.
Expect Uncertainty if Legislation Passes
The TCJA, enacted under a tight deadline in December 2017, left tax advisors scrambling to grasp changes before they kicked in on January 1, 2018, according to Campbell of Baker Tilly.
Furthermore, “there was a bit of uncertainty” surrounding several newly introduced provisions, he noted.
For example, tax professionals grappled with the details of the complex calculation for the qualified business income deduction, which can be worth up to 20% of eligible revenue for pass-through businesses, Campbell explained.
Tax professionals often find themselves with lingering questions long after Congress passes legislation, as the nitty-gritty may later be clarified by the IRS.
