Republicans Gain Control: What This Means for Your Tax Bill

With the election results in, many taxpayers and business owners are wondering how the next four years under a Republican president and Senate (and possibly a Republican House, as well) will impact their tax obligations. While President-elect Trump’s proposed plans likely will establish a lower tax environment, particularly for businesses and corporations, taxpayers must also consider the potential implications of tariffs, more stringent immigration controls and higher borrowing costs.

Although many of the expected updates to legislation will remain uncertain until Trump’s transition, taxpayers can start preparing for tax changes based on Trump’s proposals. These policies are complicated and nuanced, and it is likely that many of them will encounter resistance by Democrats in Congress. Nevertheless, understanding how they may impact you in the future can help you prepare for the most optimal financial outcome.

Key tax policies from Trump’s campaign

1. Extend and modify the Tax Cuts & Jobs Act (TCJA)
2. Cut the corporate tax rate
3. Implement tariffs

TCJA extension and updates

Trump’s plan to update the TCJA, which is currently set to expire at the end of 2025, is likely to significantly impact both individuals and businesses. He is expected to extend many of the temporary provisions of the TCJA, including:

• reduced income tax rates;
• increases to the Child Tax Credit;
• restrictions on the Alternative Minimum Tax (AMT);
• elimination of some itemized deductions and removal of an overall limit to itemized deductions;
• 20% reduction for income from “pass-through” businesses; and
• restrictions on the estate tax.

Unlike these extensions, Trump announced he will not be extending the cap on federal income tax deductions for State and Local Tax (SALT), which were limited to $10,000 under the TCJA. He has also discussed exempting certain types of income from taxes, such as overtime pay, tips and Social Security benefits.

Lower corporate tax rate

Amongst his other sweeping tax reform ideas, Trump also proposes cutting the federal corporate tax rate from 21% to 20% or 15% for companies that domestically produce their goods to encourage the manufacturing sector to increase production in the U.S.

New tariffs

Although tariffs remain a highly controversial policy, Trump announced that he will implement 60% tariffs on Chinese imports and 20% tariffs on products from other countries. Due to higher inflation and more aggressive tariffs, the impacts on retailers’ profit margins and to the average household’s spending power are expected to be detrimental.

Some economists also speculate Trump’s tariff policy could trigger retaliation from foreign countries, which would create additional challenges for U.S. exporters and manufacturers. Given the potential economic disruptions of these tariffs, many believe a phased approach will be used to introduce these tariffs to minimize the impact.

Anticipated impacts

The implications of these tax changes could be significant for many taxpayers depending on their tax bracket and filing status. For example, the proposed reduction of the corporate tax rate to 15% could make the U.S. more competitive globally by incentivizing businesses to invest and create more jobs in the U.S. For companies that perform R&D efforts, it seems likely there will be a reinstatement of 100% R&D expense deductibility, which may spur innovation and give the U.S. a competitive edge in the global economy.

As part of the TCJA updates, Republicans are also pushing to extend the 100% bonus depreciation  provision, which allows businesses to deduct the full cost of qualifying assets in the year incurred. While this provision is currently phasing out under the expiration of the TCJA, an extension of the provision may lower the after-tax cost of capital, thereby encouraging businesses to invest in new equipment and technology, potentially leading to increased productivity and economic growth.

While businesses and corporations will likely experience benefits from these aspects of Trump’s tax policies, many are concerned with the effects on individuals and families. He may repeal a variety of green energy tax credits designed to accelerate the nation’s transition to green energy sources, which risks undermining companies participating in the green energy transition and consumers of electric vehicles or energy-efficient equipment. Additionally, most economists agree that the tariffs are likely to most significantly impact consumers, rather than the intended foreign manufacturers or domestic retailers.

How to prepare

With the presidential election behind us, it is critical that companies and individuals review their tax strategies to prepare for the upcoming changes to tax laws. While many legislative decisions will likely remain uncertain until Trump is transitioned into office, his proposed tax reductions, increases, and foreign policies will impact everyone at different levels.

Significant tax policy changes require swift re-evaluation of individual and corporate tax strategies. Consult with a tax advisor to ensure you have the optimal tax strategy for your unique needs and circumstances.

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Aprio is the brand name under which Aprio, LLP, and Aprio Advisory Group, LLC, deliver professional services. Since 1952, clients throughout the U.S. and across more than 50 countries have trusted Aprio for guidance on how to achieve what’s next. As a premier business advisory and accounting firm, Aprio Advisory Group, LLC, delivers advisory, tax, managed and private client services to build value, drive growth, manage risk and protect wealth, and Aprio, LLP, provides audit and attest services. With proven experience and genuine care, Aprio serves individuals, entrepreneurs, and businesses, from promising startups to market leaders alike. Aprio has grown to 2,000+ team members providing solutions to clients in industries including manufacturing and distribution, non-profit and education, professional services, real estate, construction, restaurant, franchise and hospitality, government contracting and technology and blockchain.

John Rose leverages his extensive knowledge in federal tax law and tax practice management to help multinational businesses and individuals minimize tax liabilities.