The Tax Policies We're Watching in a New Trump Administration
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Key Takeaways
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What do you get when you mix together a new presidential administration and the looming expiration of one of the most significant tax reform packages in decades? A recipe for big changes on the horizon for taxpayers.
As we approach 2025, one thing is clear: tax policy is never set in stone. While current political momentum might suggest an extension of many provisions in the 2017 Tax Cuts and Jobs Act (TCJA), future elections could easily upend these assumptions. Proactive, flexible planning remains essential. Instead of betting heavily on a single outcome, focus on strategies that adapt to a range of possibilities. This approach ensures your financial plan remains resilient, no matter which way the political winds blow in 2024, 2026, 2028, and beyond.
Here are the policies we're watching and how tax, estate, and income policies could impact the high-earners, diligent savers, and charitable givers with which we work best.
What’s at Stake in 2025
With Republicans securing the White House and a narrow majority in both chambers of Congress, the stage is set for a year of major tax developments.
As if that weren't enough, the 2017 Tax Cuts and Jobs Act (TCJA) is set by law to expire at midnight on December 31, 2025. These potential changes, discussed as a tax "Sunset" by Open Window and others as “Taxmageddon” or the “2025 Tax Cliff,” make tax reform a top priority in Washington.
The incoming Republican administration is expected to push aggressively for tax changes, including extending much of the core provisions under the 2017 TCJA. However, Democrats still hold some sway in the House of Representatives, so some compromises will be necessary in a final bill. Further, adding to the complexity is the immediate challenge of addressing the debt limit, with a current suspension set to expire in January, right before President-elect Trump takes office.
Rather than simply extending the 2017 TCJA as-is, the focus will likely be on which provisions remain the same, which change, and which become points of negotiation and likely fail.
What’s Likely to Remain the Same?
Some core tax provisions are expected to remain largely intact:
- The 7 individual income tax brackets as introduced in 2018, with the wide 24% bracket and ceiling of 37%.
- The increased standard deduction (currently $29,200 for couples and $14,600 for singles in 2024).
- The Qualified Business Income (QBI, Section199A) deduction.
- The significantly elevated gift and estate tax exemption.
What’s Likely to Change?
Some core tax provisions are expected to change:
- Individual income tax rates for all brackets could stay low and could potentially be lowered further.
- The State and Local Tax (SALT) deduction cap of $10,000 could be raised, kept intact, or even fully eliminated (making the Pass-Through Entity Level Tax-PTET an item to watch).
- The Child Tax Credit could increase from $2,000 per child back to coronavirus-era levels of $3,600 per child for certain families.
- The Alternative Minimum Tax (AMT) could begin to apply at lower income levels.
- The corporate tax rate could be lowered to 15% for certain businesses.
What's Likely to Fail?
Several proposed changes may face challenges in Congress, including:
- Excluding certain income from income taxation, including tips, overtime pay, and Social Security benefits.
- Replacing income tax with import tariffs.
Lawmakers are likely to face a packed legislative calendar, making it more probable that they will focus on extending existing tax cuts rather than introducing new ones (or tackling contentious issues like immigration policy).
What Does This Mean for You?
The next big tax bill could arrive in early 2025, with most changes taking effect in 2026. This gives you time to prepare.
While it may not create the sweeping changes seen with TCJA in 2017, it could still have significant implications for tax planning, especially for high earners, business owners, diligent savers, and charitable givers
High earners
Look for changes to income brackets, the SALT deduction, or AMT rules that could affect your overall tax liability. Consider deferring income or accelerating deductions if you anticipate lower rates in the future. For instance, postponing bonuses or other income to 2025 could reduce your tax liability.
Business owners
Consider revisiting business structures and strategies if corporate tax rates are reduced further and adjustments to the QBI deductions are made to preserve the proportional benefit for certain non-specified pass-through business owners.
Diligent savers
Elevated gift and estate tax exemptions may be preserved, reducing the urgency for high-net-worth households to make large gifts before 2026 and encouraging certain families to hold onto assets in pursuit of the step-up in basis at death. However, keep in mind the Biden/Harris proposals, as future changes could still warrant proactive planning.
Charitable Givers
With a higher standard deduction, it remains harder for many taxpayers to itemize deductions, including claiming charitable contributions eligible for a deduction. So, to maximize the tax benefit of your charitable giving, consider "bunching" donations into a single tax year. By concentrating multiple years’ worth of contributions into one year, you can exceed the standard deduction and itemize, allowing you to fully deduct your charitable gifts.
Pairing this strategy with a donor-advised fund can provide flexibility, as you can make a large, upfront contribution, claim the full charitable deduction in one year, but distribute the funds to charities over many different years. Further, you can donate appreciated assets to a donor-advised fund, like stocks or mutual fund shares that have grown in value. This allows you to avoid capital gains tax while deducting the full market value while still maintaining the flexibility to distribute the funds to the same charities over time.
Remain Aware of 2026, 2028, & Beyond
While it’s easy to assume that the current political momentum will solidify specific tax policies, it’s still important to remain cautious and patient.
Political landscapes can shift rapidly, and with another election just around the corner in 2026, the balance of power could swing back in the opposite direction. This could lead to reversals or significant changes to any new tax laws passed.
Consider some of Vice President Harris' key proposals, including:
- Increasing income tax rates and capital gains tax rates
- Increasing the Net Investment Income Tax
- Taxing unrealized capital gains
- Decreasing the gift and estate tax exemption
- Limiting the "step up" by treating death as a realization event
- Caps on retirement account balances
- Creating a new wealth tax
- Increasing the corporate income tax rate
See our Trump & Harris Tax Policy Deep Dive.
If you’re unsure how these potential changes could have impacted your financial goals, consult with a competent advisor to help you stay ahead of the curve.
Try to remain flexible in your planning, focusing on strategies that work under various scenarios rather than betting heavily on one final tax and political outcome.
Next Steps
While political shifts can bring uncertainty, they also create opportunities for those who can be informed and proactive. By reviewing your tax strategy, investment portfolio, and overall financial plan, you can not only weather potential changes but thrive in a new landscape.
Given the complexity and unpredictability of policy changes, this is an ideal time to work closely with a fiduciary financial advisor like Open Window. We can help you:
- Interpret and act on new laws.
- Tailor strategies to your specific intentions.
- Ensure your financial decisions remain objective, informed, and aligned with your long-term objectives.
As a stronghold for your family's finances, we can help you navigate the nuances of your financial journey.
Reach out to us anytime at (775) 827-0670 or schedule a 'Quick Connection' time with us at www.openwindowFS.com/connection.