Tax Planning Shifts After Election

For months, taxpayers have been eyeing the end of tax cuts written into law in 2017 with the Tax Cuts and Jobs Act, enacted during Donald Trump’s first administration and triggered to sunset in 2026. For much of this year, the thinking has been: “Plan now to get ahead of tax law changes before it’s too late.”

But now that Republicans have won the Senate, House of Representatives and White House, the law (and its tax cuts) may have found new life, and time-sensitive recommendations have shifted during one of the biggest times of the year for tax planning.

With Donald Trump’s second term coming, what will the new tax-planning suggestions be for the end of 2024?

According to Jeffrey Kelson, tax partner co-leader of the national and New Jersey tax departments at Eisner Advisory Group in Iselin, N.J., some taxpayers may anticipate lowered corporate rates, as well as a possible extension of the 2017 law’s qualified business income (or QBI) deduction. Taxpayers might also hope for lower individual tax rates, increased estate tax exemptions or a possible lifting of the deduction cap on state and local taxes. Yet they’re also unhappy about the possibility that President-elect Trump could unilaterally impose tariffs.

“Clients shouldn’t assume that the Republican trifecta means that every proposal Trump made on the campaign trail will become law,” Kelson said. “Corporate clients will probably have to wait to see any promises like a further reduced corporate tax rate come to fruition, while individual clients are better positioned to see [the 2017 law] provisions extended before they expire.”

The top ordinary income tax rate is expected to remain at 37%, with the top long-term capital gains rate staying at 20%, said Sam Petrucci, head of advice, planning and fiduciary services at Neuberger Berman’s Private Wealth Management division in New York. Petrucci said the estate tax exemption also has a better chance of standing; it’s currently at $13.61 million and will increase to $13.99 million in 2025.

Trump proposed several other tax cuts during his campaign, such as the elimination of taxes on tips, Social Security benefits and overtime pay. He also floated the idea of deducting interest on auto loans for vehicles manufactured in the United States and potentially removing the cap on the state and local tax deduction, currently limited to $10,000.

“What will the cost of these proposals be?” Petrucci asked. “Which proposals have the best chance of becoming law? And how will tariffs impact revenue generation to offset these costs?

“Expect lively negotiations within Republican ranks.”

“Generally, [clients] understand that the current tax provisions will likely be extended, and I think that’s a fair expectation,” added Thomas Pontius, senior financial planner at Kayne Anderson Rudnick in Los Angeles. “We won’t know the details until we start seeing proposed bills next year. Congress still needs to pass a tax bill, and in 2021, when Democrats controlled [the Congress and the White House], they weren’t able to pass Build Back Better. President-elect Trump has made many promises along the campaign trail, and he’ll need to win over many Republicans concerned about the continuing trillion-dollar-plus deficits we’ve run for the past four years.”

So how do you plan for taxes now?

“Clients may be advised to accelerate income to 2025 when possible, to minimize the higher tax on income,” said Paul Miller, a CPA and managing partner at Miller & Co. in New York. “The 20% QBI deduction for businesses may be eliminated, so again, businesses may accelerate income in 2025 if possible.”

There could also be deductions for casualty losses and moving expenses, Miller said, or lower limitations on deductions of cash charitable contributions and changes to the limitations on passive loss deductions for individuals. All these things could dampen the pain from an increase in tax rates, Miller said.

Taxpayers’ standard deduction could also revert to the previous levels before the Tax Cuts and Jobs Act, Miller said, as could the cap on state and local tax deduction and the cut of the tax credit for “other dependents”—even if the personal exemption is reinstated.

Megan Slatter, a wealth advisor at Crewe Advisors in Salt Lake City, said taxpayers should “focus on tax-smart moves that work under different outcomes, like maximizing retirement savings, using trusts for estate efficiency and capturing credits and deductions while they’re available.”

“State tax laws [also] often change in response to federal adjustments. A comprehensive plan should look at both,” she said.