Potential Income Tax Changes Under President-Elect Trump

As President-elect Donald Trump prepares to assume office, significant changes to the U.S. tax landscape may be on the horizon. Several key initiatives, based on his campaign proposals and recent Republican priorities, are likely to shape upcoming tax legislation. Here’s a breakdown of the most anticipated adjustments:

1. Ten-Year Extension of 2017 TCJA Tax Cuts
   The 2017 Tax Cuts and Jobs Act (TCJA) brought substantial tax relief to individuals and businesses, including lower income tax rates and increased standard deductions. These provisions are set to expire by the end of 2025, but the Trump administration is expected to push for a decade-long extension, locking in these benefits for years to come.
2. Reduction of Energy Credits from the Inflation Reduction Act
   Recent years saw an expansion of clean energy incentives under the Inflation Reduction Act (IRA). However, the incoming administration is likely to scale back some of these credits, particularly those targeting renewable energy, in favor of promoting traditional energy sectors.
3. Increased Tariffs and Tax Implications
   In alignment with Trump’s trade policies, increased tariffs on imported goods could reemerge. This move may impact supply chains and manufacturing costs, indirectly affecting taxable income for certain industries.  The revenues generated could help offset other taxpayer-friendly tax provisions.
4. Restoration of a State and Local Tax (SALT) Deduction
   The TCJA significantly capped the SALT deduction at $10,000, disproportionately affecting taxpayers in high-tax states. There’s potential for a revised or expanded SALT deduction, offering some relief to impacted taxpayers while maintaining limits to offset revenue losses.
5. Restoration of Research Expenditure Deduction
   Businesses have long benefited from the ability to deduct research and development expenses. The restoration of this deduction in full would provide a significant boost to innovation-driven sectors.
6. Full Bonus Depreciation
   Bonus depreciation, which allows businesses to immediately write off a large portion of qualifying assets, is scheduled to phase out under current law. Reinstating full bonus depreciation would support capital investment and economic growth.

Additional Provisions Likely to Be Proposed:

• Maintaining the Current $14 Million Estate Tax Exemption
  The high estate tax exemption introduced by the TCJA is set to sunset in 2026, but this administration may prioritize keeping it at current levels.
• No Taxation of Tip Income
  Though challenging to enforce, a proposal to exclude tip income from taxation could be introduced to support service industry workers.
• No Taxation of Social Security Income
  Currently, income tax on social security income helps to fund the social security trust fund.  Its elimination could accelerate the depletion of that fund, making implementation tricky.
• Expansion of the Child Tax Credit
  Enhancing the child tax credit could provide increased financial support to families, building on previous expansions under the TCJA and other legislation.

These proposals, if enacted, could have broad implications for individuals, businesses, and the economy at large. As details emerge, staying informed and consulting with a tax professional will be crucial for navigating the potential changes.