Tax Planning Now That Trump Won the Election

Unless something strange happens, the election has decided America’s next president. This blog works hard to stay apolitical. I vote and suggest you do the same. I do NOT take a side here. (Or anywhere else, for that matter.) What I do is provide the information you need to make good financial decisions, regardless who the president is. Taxes are a big part of that. Therefore, we will discuss tax planning in anticipation of potential tax law changes under a Trump presidency 2.0.

First, understand that candidates are like a kid in a candy store when campaigning. Not ever promise sees the light of day. In each section below I will give the odds for the tax change discussed. This can change over time. As things clarify I will return to this page and update it. Bookmark if you want to stay on top of tax law changes.

You can also check the tax planning page of this blog here.

Tax Planning Under Trump 2.0

Tax Cuts and Jobs Act

In 2017 the TCJA was passed. The TCJA made business changes permanent and other changes temporary. At the end of 2025 the nonbusiness tax law changes revert back to the rules in 2017. Understand that “business” here refers to regular corporations. S-corporations, sole proprietorships, and partnerships have temporary changes currently.

The standard deduction increased and exemptions eliminated are two notable changes under the TCJA. The state and local tax deduction (SALT) was capped at $10,000 per return ($5,000 for married filing separately returns). It is very likely these changes will either be extended or made permanent under Trump. 2026 will probably be the same as 2025 in regards to the standard deduction and exemptions. The SALT cap stands a good chance of being increased for tax years beginning after December 31, 2025. How much? We can only guess at this time. Trump suggested eliminated the cap on at least one occasion. Time will tell.

Miscellaneous itemized deductions, subject to 2%, were eliminated for most. These deductions, should you itemize, are reduced by 2% of your adjusted gross income (AGI). Armed Forces reservists, qualified performing artists, fee-basis state and local government officials, and the disabled with impairment-related expenses can still use this section of itemizing. It is likely these rules will remain in effect. Miscellaneous deductions, subject to 2%, are probably not coming back, with the exception for the four groups mentioned above.

Trump wants to make the tax cuts under the TCJA permanent. He would like to lower the income tax even more. The issue here is the national debt (discussed below).

I will update more on the TCJA as reliable information presents itself.

Personal Income Tax Rates

Trump has not been clear on how, or even if, he would reduce personal income tax rates. The current top personal income tax rate is 37%. Would he reduce the top rate only? All rates? Nothing at all?

At one time he mentioned in an offhand way that the federal income tax could be eliminated, paid for with tariffs. This is a nonstarter. (See tariffs below.)

All I can say is check back often to see where we stand on tax rates for individuals.

Capital Gains

Trump didn’t say a lot about capital gains. Some statements can be understood as reducing the long-term capital gains (LTCG) rate to perhaps a 15% maximum. Project 2025 says just that.

The interesting part of the Project 2025 recommendation is the indexing of LTCGs. Under the proposal, the basis of the asset would be indexed to the Chained CPI-U index.

Remember, tax law changes discussed here would come into effect for 2026. The upcoming 2024 tax season will look a lot like the 2023 tax season.

Odds of becoming law? Better than 50/50. High, but not 100%.

Child Tax Credit

J.D. Vance has said he supports increasing the child tax credit to $5,000 and Trump agrees with the proposal. The current child tax credit drops from $2,000 to $1,000 after 2025 if changes are not made.

Odd for an increased child tax credit? Good.

Tax-free Tips

This proposal would be difficult to handle. Plus, people might be less willing to tip if they think the person receiving the tip is not paying tax.

Another issue involves which tips count. Can my tax office covert some of the preparation fees into tips? If so, the deduction will become bedlam. The only way to make this work is to exempt tip income for specified groups only. VP Harris suggested service and hospitality employees only. But which services? Many tipped employees are not paying much in tax anyway so the benefit is of small value. Perhaps the exemption will extend to the payroll tax. But will that affect Social Security benefits?

Odd? Not good. It might get proposed, but I think it dies on the vine. I could be wrong, but nobody will be lobbying for this group of taxpayers.

Social Security and Overtime Pay

Social Security benefits were first taxed in 1984 as part of a fix to the Social Security trust fund running low. Trump has suggested all Social Security benefits once again be untaxed.

As much as I would like to see this pass, I think the odds are 50/50 at best. Fingers crossed I am wrong.

Trump also suggested overtime pay be untaxed. There are likely too many issues to resolve to make this work. Example: Is part of a salaried employee’s pay exempt? Is holiday pay or double time included? Where do we limit the exemption? The biggest issue is the cost to the Treasury. With the annual deficit near $2 trillion, the many tax cuts suggested would make a bad situation worse.

Odds? Low.

Itemizing Car Loan Interest

The value of this deduction is limited to high-incomers. With the standard deduction so high, few itemize anymore. Only the wealthy will have enough itemized deductions. If this does pass, prepare to see more auto loans among the wealthy as a tax strategy (see below).

Odd? Not good.

Obamacare

The expansion of Obamacare subsidies are unlikely to be extended.

Business Taxes

Two proposals stand a good chance of enactment: 100% first-year bonus depreciation (including increased asset expensing) and deduction of R&D expenses the year incurred (instead of the current amortizing of these expenses over five years).

Corporate Tax Rates

Trump proposed lowering the tax rate for regular corporations from 21% to 20%; 15% for corporations manufacturing their products in the U.S.

Cost to the Treasury is a big headwind here. Plus, nobody is really asking for it. Still, there is a good chance some form of this tax reduction takes place. It is possible the corporate tax cuts are limited to profits from the manufacture of products in the U.S. As always, the devil will be in the details. Where the cuts apply will be the interesting part.

Estate Taxes

The lifetime estate tax exemption drops from $13,610,000 to $7,000,000 after 2025. Because small business owners and farmers suffer from this tax disproportionately, there is a reasonable chance, say 50/50, that the current exemption will be continued.

Inflation Reduction Act

Expect a major gutting of current clean energy tax benefits.

Tariffs

Trump loves tariffs. He has suggested a 10% to 20% across the board tariff, with China getting special treatment with a 60% tariff.

Tariffs have so many problems. First, contrary to popular belief, the exporting country does not pay the tax. Instead, the tax is paid when the item is imported and the extra cost passed along to the consumer. In short, this becomes a consumption tax.

Second, China has already found workaround for tariffs focused on them. A narrow tariff on China is unlikely to work.

Third, tariffs are inflationary. And there is one thing American consumers discovered for the first time in decades, they don’t price increases.

Fourth, large tariffs will trigger retaliatory tariffs from other countries, slowing each country’s economy.

In short, tariffs increase the costs of good for consumers of the country importing the products. While this can make domestic producers more profitable, reciprocal tariffs will only serve to slow trade and the economies of all countries involved. Need I remind readers the cost to the economy of tariffs enacted in 1930? A bad economy was turned into a depression over such poor trade policies.

Last, tariffs raise less money for the government than anticipated. The reduced trade due to the tariff limits the tax revenue benefits. If Trump thinks he can lower a lot of other taxes, with tariffs making up the difference, I suggest checking the history books. It isn’t pretty.

National Debt

The current national debt is $36 trillion, growing at nearly $2 trillion per year. More tax cuts are nice for the crowd, but if the national debt grows any faster there is a serious risk the U.S. will reach a point where it becomes impossible to service those debts without default.

Worse, some of the proposals are sure the fuel inflation. That means higher interest rates! Add lower taxes with higher inflation and interest rates, and we get a consumer paying more in increased prices and interest expenses than taxes saved. There is a balance in here somewhere, but it feels like the corpus of these proposals is a step too far.

The current annual federal deficit of $1.8 trillion adds over $5,000 of debt for every man, woman, and child in the U.S. each year. That is on top of the already $106,000 for each person.

It becomes clear all these campaign promises cannot be enacted. The system would break sooner than later. What interests you is the details. What tax strategies can you use? What cuts will become law?

Tax Strategies

If LTCGs become indexed there is a play here. It will allow some taxpayers to lower their tax bill when selling a long-term asset. Using a like-kind exchange when selling an income property will be less valuable with LTCGs indexed. A strategy might be to push out LTCGs until the details are revealed.

If car loan interest becomes an itemized deduction, some taxpayers may have a play. Encumbering a vehicle might be a good strategy, even if you don’t need the loan. As always, facts and circumstances prevail.

If enhanced Obamacare benefits are not extended, some tax payers may need to plan their healthcare insurance coverage differently. Your personal facts and circumstances will play such a large role. All I can say is that your strategy will be unique to you. It is likely you will need a professional to help you navigate the large number of issues involves.

If tariffs become real, you will pay the tax when you buy stuff. Front-running is a possibility. But if everyone rushes the door, prices will likely reflect future tariffs. Tariffs hit lower income people harder. However, wealthier people that spend more will pay more. But they have the ability to pay more, as well.

This short list is sure to grow. I will update this post often. As more details become clear I will share those with you, along with strategies for maximizing the benefits of such changes.

The next couple years will have a lot of changes in the tax arena. The only way to maximize your benefits is to stay on top of the changes and apply them accordingly. I am here to help you with that.

Talk with you soon.