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On November 5, 2024, the United States elected Donald Trump to lead our country for the next four years. With the Republican party regaining control of the White House, they will look to extend the expiring tax reforms they implemented under the 2017 Tax Cuts and Jobs Act (TCJA). Here is an overview of some of the policies and how they will affect you and your practice:

Qualified Business Income Deduction: The TCJA of 2017 introduced a new deduction for business owners. The Qualified Business Income (QBI) deduction allows eligible taxpayers to deduct up to 20 percent of their QBI each year. The QBI deduction is subject to limitations, depending on the taxpayer’s taxable income, which includes the type of trade or business, the number of W-2 wages paid by the qualified trade or business, and the unadjusted basis immediately after acquisition (UBIA) of qualified property held by the trade or business.

The incoming administration plans to extend this deduction and will look to make it a permanent deduction for business owners. Additionally, expect the new administration to expand the taxable income phase-out limitations to allow more business owners to be eligible for the deduction. 

State and Local Tax Deductions: The TCJA of 2017 implemented a $10,000 limitation on the amount of state and local taxes (SALT) taxpayers can itemize on their tax returns. Economic policy advisers for the new administration oppose any increase to the cap and want to lower the cap or end the SALT deduction altogether. However, the president-elect has floated the idea of eliminating the cap so taxpayers can fully deduct state and local taxes. If the new administration were to follow through with this action, it would eliminate the Pass-Through Entity (PTE) tax credit.

Most states implemented the PTE tax credit in response to the SALT deduction limitation. It allows the owners of pass-through entities (partnerships and S-Corps) to pay the state taxes on their income directly from the business. PTE tax credit generates a business deduction at the federal level and a tax credit at the state level that passes through to the owners at the individual level.

Repealing the $10,000 SALT limitation would likely also increase the standard deduction available to individual taxpayers.

Restoration of Bonus Depreciation: Bonus depreciation allows businesses to accelerate depreciation on new fixed assets and equipment purchases instead of expensing it evenly over the asset’s life. Before the TCJA, companies could utilize bonus depreciation to expense 100% of the cost of new equipment purchases. The TCJA implemented a plan to sunset the bonus depreciation eligible to businesses to zero over five years. The tax year 2024 is the last year businesses can accelerate over 50% of the cost of new fixed asset purchases.

If the current rules remain unchanged, bonus depreciation will end after 2026. However, the incoming administration has stated that it intends to amend the tax policy to restore bonus depreciation to 100%. Restoring this policy would be an excellent win for business owners because they could lower (or, in some cases, eliminate) their taxable business income without impacting their cash flow.

Individual Income Tax Rates for 2025 and Beyond: For the tax year 2025, the individual income tax rates are:

• 37% for incomes greater than $626,350 ($751,600 for married couples filing jointly)
• 35% for incomes over $250,525 ($501,050 for married couples filing jointly)
• 32% for incomes over $197,300 ($394,600 for married couples filing jointly)
• 24% for incomes over $103,350 ($206,700 for married couples filing jointly)
• 22% for incomes over $48,475 ($96,950 for married couples filing jointly)
• 12% for incomes over $11,925 ($23,850 for married couples filing jointly)
• 10% for incomes $11,925 or less ($23,850 or less for married couples filing jointly)

Individual income tax rates are set to revert to the pre-TCJA 2017 brackets, which were 10%, 15%, 25%, 28%, 33%, 35%, and 39.6%, respectively. The incoming administration has stated its intent to make the tax brackets from the 2017 tax law permanent and desires even lower income tax rates for individuals.

Additional Tax Topics: Here are the fast facts on some additional tax topics discussed or rumored by the incoming administration:

• Tax Exempt Tips and Overtime: This proposal has generated the most buzz during the 2024 election cycle. It would exempt tips and overtime wages from federal income and payroll taxes. While enticing, experts agree it would be too costly to pass in Congress.
• Capital Gains: Rumors suggest that the president-elect supports lowering the top tax rate on long-term capital gains to 15% from 20%, though this hasn’t been confirmed.
• Child Tax Credit: The current $2,000 per child credit for taxpayers with children under age 17 will drop to $1,000 after 2025. The new administration has publicly supported increasing the child tax credit to $5,000 per child and expanding the income phase-out limitations.
• Deducting Interest Paid on Car Loans: At a campaign rally in Detroit, the president-elect called to make interest paid on car loans an eligible itemized deduction.
• Estate and Gift Taxes: The federal lifetime estate and gift tax exemption in 2024 is $13,610,000, and the highest estate tax rate is 40%. The figure will drop to roughly $7 million after 2025. Rumors indicate that the incoming administration aims to keep the higher lifetime exemption and lower the federal estate tax rate to a maximum of 20%.
• Domestic and Foreign Tariffs: The president-elect has been very vocal about imposing higher tariffs on goods imported from foreign countries. Domestically, there have been conversations about shifting towards a consumption-based tariff system. This system would eliminate taxes on earnings and tax people on their spending instead.

Don’t hesitate to contact any of our Granite Peak team members if you have any questions about how the topics in this blog impact you and your business.

Written by Matthew Santoro, Tax Manager