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If Donald Trump is re-elected president, and assuming Congress cooperates, there shall be significant changes to non-public and corporate income taxes. The essential goal of Trump’s tax policy is enablement Tax Cuts and Jobs Act (TCJA) permanently, adopted during his first term. Some parts of the TCJA have already expired or are being phased out, and most of the remaining provisions will expire by the end of 2025.
Supporters of those tax cuts say they drive economic growth. Opponents are concerned about the impact on government spending and budget deficits. Regardless, here are the top ten ways Trump’s re-election could affect your taxes.
1. Individual tax rates could be lowered
If the TCJA becomes everlasting, individuals earning greater than $500,000 shall be taxed at a rate highest rate 37%. If the TCJA expires, individuals earning greater than $426,700 shall be taxed at a rate the highest rate of 39.6%.
2. Individual “standard” tax deductions will remain high
The TCJA increased the individual tax deduction – used by individuals who do not itemize their deductible expenses on their tax returns – to $12,400 for individuals and $24,800 for joint filers. If it expires, these deductions will proceed come back to previous levels of $6,200 and $12,400, respectively. However, personal exemptions for a taxpayer, their spouse and each of their dependents – amounting to as much as $4,050 – could return, offsetting some of the increased tax costs.
3. Corporate income tax rates will go even lower
The TCJA reduced the corporate tax rate from 28% to 21% for firms filing C-Corporation tax returns. Trump has said he desires to lower that rate to 20%, which might put the US one of the lowest corporate tax burdens around the world.
4. The qualified business income (QBI) tax deduction continues
Above 90% firms in the US are considered “pass-through” entities. Owners of such businesses typically file tax returns as an S-Corporation or partnership, and the net income from the business flows onto the owner’s tax return and is taxed at individual rates. The TCJA introduced a significant tax break – the qualified income tax deduction (QBI) – that enabled many of those businesses deduct as much as 20% their company’s income before it translates into their individual profits. Trump desires to make this tax deduction everlasting.
5. Real estate tax exemptions will remain at their current level
WITH greater than half small business owners over the age of fifty, succession and estate planning have develop into a significant problem. Those who want to pass on property to their heirs will have to pay a federal estate tax rate of 40%. However, the TCJA increased the exemption for assets that will be subject to this tax to greater than $11.2 million for individuals and $24.4 million for married individuals. Although the rate will remain the same when the TCJA expires, the exemption amounts will drop to $5.6 million and $11.2 million, appropriately. This could be in addition to property taxes collected by many states.
6. Research and development expenses are deductible again in the first yr
Already in 2022, it should be possible to deduct research and development expenses (including certain materials, remuneration and costs of external contractors used to develop recent products or improve existing products) in the first yr (*10*)extinct. Unfortunately, this forced entrepreneurs using this deduction to capitalize and then depreciate these expenses over five years, which spread the tax advantages of those costs. If made everlasting, the TCJA would again allow business owners to reap the benefits of these deductions in the first yr.
7. Large deductions pays off when purchasing fixed assets
As with research and development expenses, firms enjoyed significant deductions for capital expenses corresponding to machinery, equipment, computer equipment, cars and other equipment in the first yr these assets were put into service. These deductions have began withdraw but could be restored under Trump’s tax plan.
Trump also announced his intention to pursue two other tax reforms, although no details are available yet.
8. No more taxes on tip income
The first concerns tip income, which Trump has proposed not taxable. This would have far-reaching effects not only on service employees, but also on the potential way small businesses pay their employees, creating an incentive to encourage customers to tip more often and reduce out-of-pocket pay.
9. More tariffs
Tariffs are taxes that companies pay to import goods that ultimately result in higher costs for consumers. Under the Trump administration, a basic rate 10% shall be imposed on all imports, provided that: Tariff 60%. charged on Chinese goods.
Expansion of 529 plans
529 plans are a popular technique to get monetary savings after taxes and make it tax-free so long as the funds are used for higher education and education at private and religious schools. Trump it will expand using 529 funds so they may be used for home education.
The bottom line is that Trump’s tax stance largely leans toward lower taxation of each businesses and individuals, which he believes will spur economic growth. This increase would then generate more tax revenue for the government. However, his policies could result in significant deficits if this increase does not occur.