Under Donald Trump’s presidency, the U.S. tax system underwent significant changes, many of which are slated to end by 2025. These alterations have far-reaching effects on individuals, families, and businesses, necessitating a thorough grasp of their consequences as the expiration deadline looms.
#1. Individual Income Tax Rate Reductions
Under the Tax Cuts and Jobs Act (TCJA) signed into law by President Trump in 2017, individual income tax rates were lowered across the board. This resulted in taxpayers generally paying less in federal income taxes.
High-income Earners Will Be Affected
Middle-class taxpayers and high-income earners will be affected differently. The TCJA lowered individual income tax rates across the board, with marginal rates ranging from 10% to 37%.
Middle-class taxpayers generally saw lower tax liabilities due to these reductions. High-income earners benefited from lower rates but may experience a smaller overall tax reduction compared to middle-class taxpayers.
#2. State and Local Tax (SALT) Deduction Limitation
The TCJA limited the deduction for state and local taxes (SALT) to $10,000 for individuals and married couples filing jointly.
This limitation primarily affects taxpayers in high-tax states, potentially increasing their federal tax liabilities.
Tax Liabilities May Increase
Taxpayers in high-tax states, such as California and New York, will feel the impact of the SALT deduction limitation.
Tax liabilities may increase for individuals and families who itemize deductions and have significant state and local tax payments.
#3. Mortgage Interest Deduction Limits
The TCJA reduced the cap on deductible mortgage interest from $1 million to $750,000 for new mortgages.
This change affects homeowners with larger mortgage balances, particularly in expensive housing markets.
High-value Mortgages Will Be Affected
Homeowners with high-value mortgages will be affected by the mortgage interest deduction limits.
The deduction reduction may result in higher taxable income for homeowners with mortgages exceeding $750,000, potentially increasing their federal tax liabilities.
#4. Corporate Tax Rate Reduction
The TCJA lowered the corporate tax rate from 35% to 21%, aiming to enhance U.S. competitiveness and stimulate economic growth.
Corporations benefited from reduced tax liabilities under this provision.
Higher Tax Liabilities for Corporations
Businesses, particularly large corporations, benefited from the TCJA’s corporate tax rate reduction.
Corporations could face higher tax liabilities if the lower rate expires after 2025, potentially impacting investment decisions and profitability.
#5. Bonus Depreciation and Expensing
The TCJA expanded bonus depreciation and increased expensing limits for businesses investing in qualified property.
These provisions incentivized capital investment and accelerated tax deductions for equipment and machinery purchases.
Reduced Investment Incentives
Businesses investing in qualified property benefited from bonus depreciation and increased expensing limits.
If not extended after 2025, businesses may face reduced incentives for investment, potentially impacting economic growth and job creation.
#6. Alimony Deduction Elimination
Under the TCJA, alimony payments are no longer deductible for divorces or separations executed after December 31, 2018.
This change affects individuals paying alimony and recipients of alimony payments.
Higher Tax Liabilities for Alimony Payers
The elimination of the alimony deduction impacts individuals paying alimony and recipients of alimony payments.
This change may affect divorce negotiations and financial planning for divorcing couples, potentially leading to higher tax liabilities for alimony payers.
#7. Pass-Through Business Deduction
The TCJA introduced a qualified business income deduction for owners of pass-through entities, allowing eligible taxpayers to deduct up to 20% of their qualified business income.
Small Business Growth and Investment Impacted
Owners of pass-through entities, such as partnerships and S corporations, benefited from the TCJA’s pass-through business deduction.
If not extended after 2025, pass-through business owners may face higher tax liabilities, potentially impacting small business growth and investment.
#8. Estate Tax Exemption Increase
The TCJA doubled the estate tax exemption from approximately $5.5 million to $11.18 million per individual, indexed for inflation.
This change reduced the number of estates subject to federal estate tax.
Increasing Estate Tax Liabilities
High-net-worth individuals and heirs of large estates were impacted by the TCJA’s estate tax exemption increase.
Without congressional action, the exemption will revert to pre-TCJA levels after 2025, potentially increasing estate tax liabilities for wealthy individuals and families.
#9. Alternative Minimum Tax (AMT) Changes
The TCJA increased AMT exemptions and raised the phase-out thresholds, reducing the number of taxpayers subject to the AMT.
More Taxpayers Subject to the AMT
Taxpayers subject to the Alternative Minimum Tax (AMT) were affected by the TCJA’s changes to AMT exemptions and phase-out thresholds.
If these changes expire after 2025, more taxpayers may become subject to the AMT, potentially resulting in higher tax liabilities and complexity.
#10. Child Tax Credit Expansion
The TCJA increased the Child Tax Credit (CTC) from $1,000 to $2,000 per qualifying child and raised the income thresholds for eligibility.
This change provided additional tax relief for families with children.
Reduced Tax Benefits for Families
Families with children benefited from the expansion of TCJA’s Child Tax Credit (CTC).
If not extended after 2025, families may experience reduced tax benefits from the CTC, potentially impacting household finances and child-related expenses.
Evolving Tax Changes
As Trump-era tax changes approach expiration, policymakers face critical decisions. These changes impact individuals, businesses, families, and the economy.
Understanding their implications is vital for navigating evolving tax policy.
Biden’s New 401(k) Rule: Employers Frustrated as Retirement Planning Responsibilities Shift
The latest Biden administration rule on 401(k) plans is reshaping how employers manage retirement plans. It’s a complex scenario requiring a fresh understanding of fiduciary duties and provider relationships. This rule aims to protect employees but also imposes new responsibilities on employers. Biden’s New 401(k) Rule: Employers Frustrated as Retirement Planning Responsibilities Shift
Elon Musk: New Immigration Bill ‘Enables Illegals to Vote’
Elon Musk is calling for prosecutions after the text for a new senate bill on immigration was released. Musk accused the new bill of “enabling illegals to vote.” Elon Musk: New Immigration Bill ‘Enables Illegals to Vote’
Colorado Officials Reject Sanctuary City Status, Warn Against ‘Dangerous Game’
With increasing numbers of migrants arriving in Colorado, public officials have rejected any notion of the state becoming a sanctuary for migrants and asylum seekers. Colorado Officials Reject Sanctuary City Status, Warn Against ‘Dangerous Game’
Disney Challenges DeSantis’ “Don’t Say Gay” Rule With a Hefty Lawsuit
Disney is set to appeal its refusal for a lawsuit against Ron DeSantis, who stripped the company of its rights for disagreeing with the Governor’s views on the teaching of sexual orientation in classrooms. Disney Challenges DeSantis’ “Don’t Say Gay” Rule With a Hefty Lawsuit
Trump on the Attack as 21 Million Americans Flock to Obamacare, Biden Pushes Forward
An unprecedented surge in health plan enrollments has reignited former President Donald Trump’s commitment to dismantling the program should he secure the GOP nomination once again. Trump on the Attack as 21 Million Americans Flock to Obamacare, Biden Pushes Forward
The post 10 Trump-Era Tax Changes Expiring by 2025: Could You Be Paying More Tax? first appeared on From Frugal to Free.
Featured Image Credit: Shutterstock / mark reinstein.
The content of this article is for informational purposes only and does not constitute or replace professional financial advice.
For transparency, this content was partly developed with AI assistance and carefully curated by an experienced editor to be informative and ensure accuracy.
