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Even for those who were devastated by the recent election results, there are some positive aspects to consider when it comes to taxes. The unanticipated sweep of the presidency and both houses of Congress by the GOP is likely to change the direction of some federal tax policies.
One of these changes is the probable fate of the Tax Cuts & Jobs Act. The TCJA, which Republicans created in 2017 and which is set to expire at the end of 2025, is almost certainly going to get a lifeline. The seven tax brackets and increased standard deduction, some of the TCJA’s most popular features, will almost certainly stay. That’s good news for anyone who appreciates straightforward savings and a bit of stability.
But as with all things tax-related, it’s not all smooth sailing. The $10,000 cap on state and local tax (SALT) deductions, a particularly sore spot for those in high-tax states like California and New York, could become a major sticking point. Trump has hinted at scrapping the cap altogether, a surprising move given that he signed it into law in the first place. However, the SALT cap also has defenders among Republicans who enjoy seeing higher-tax states shoulder more of the burden. A compromise like raising the cap or tying it to inflation seems more likely than a full repeal.
Even here, there’s an overlooked bright spot: pressure to adjust the SALT cap could encourage broader discussions about fairness in deductions. This might even potentially lead to relief for middle-income households feeling squeezed by rising local taxes.
For families, there is a potential win on the horizon with the Child Tax Credit. While it’s currently capped at $2,000 per child, there is bipartisan interest in boosting it closer to the pandemic-era high of $3,600. Expanding the credit might not solve every problem, but it’s an acknowledgment of the financial load families carry. Given the cost of raising kids, any extra cushion is bound to be welcomed with open arms.
For business owners, the Section 199A deduction for pass-through entities—think LLCs and S-Corps—could see enhancements, especially if corporate tax rates are slashed further from 21% to 15%. For smaller businesses, keeping and possibly expanding this deduction could mean hiring new employees or holding back growth. Some owners of businesses that are not currently C-corporations may consider switching to C-Corp status.
Then there are Trump’s more unconventional proposals, such as making tips and overtime pay tax-free, eliminating taxes on Social Security benefits, and even replacing the income tax with tariffs. While these ideas grab headlines, their practicalities are questionable.
Tax-free tips could help workers but might have unintended consequences like encouraging employers to slash wages. Eliminating taxes on Social Security would be a boon for retirees, but the revenue shortfall may be offset by tariffs. This could significantly impact both retirees and middle-class households. The Congressional Budget Office estimates tariffs could add an average of about $1,277 annually to household expenses, with some projections suggesting costs could exceed $4,000 for certain families.
Even with uncertainty, the TCJA’s extension will likely dominate the next legislative session. With Congress needing to act before the law sunsets, taxpayers should prepare for a system that looks familiar but includes a few surprises. The next tax bill may not overhaul the system, but it’s bound to have ripple effects on household budgets.
Whether you are elated or disheartened by the election results, one thing is clear: tax planning just got a little less foggy. In these turbulent times, there is value in having some idea how to prepare for what comes next.
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