As Donald Trump prepares for a second term in the White House, tax policy is again set to be a significant focus of his administration. While a formal, comprehensive tax plan was not released during the 2024 campaign, Trump did outline several key tax policy proposals during the campaign. These tax proposals were largely geared toward stimulating economic growth, encouraging domestic production, and providing tax relief to U.S. individuals and businesses. The major components of his tax agenda included:

Corporate Tax Rate Reductions and Tariffs

• Lowering the Corporate Tax Rate: Trump has proposed reducing the corporate federal income tax rate from the current 21% to 20% for all corporations, and further reducing the effective corporate tax rate to 15% for companies that manufacture products within the U.S. The reduction in rates aims to encourage domestic production and increase the competitiveness of U.S. companies in the global markets.
• Reinstating the Domestic Production Activities Deduction (DPAD): By reinstating the DPAD to 28.5%, Trump would further reduce the effective tax rates for U.S.-based manufacturers, providing an incentive for investment in domestic facilities and job creation.
• Tariff Proposals: Trump also proposed to aggressively increase tariffs on all U.S. imports. The proposal would have widespread effects by imposing a universal tariff on all U.S. imports to 20% and an increase on current tariffs on China to 60%. Trump also proposed a foreign retaliation of 10% on all U.S. exports plus additional in-kind tariffs on U.S. exports to China. 

Individual Income Tax Changes

• Individual Tax Rates: Another key proposal is to make permanent several individual tax cuts established under the TCJA, including maintaining the top marginal tax rate of 37%, which is scheduled to increase to 39.6% in 2026. 
• Child Tax Credit Expansion: The former president has also proposed extending the child tax credit of $2,000 per child or potentially increasing the credit to $5,000.
• State and Local Tax Deduction (SALT): Trump has proposed eliminating the $10,000 SALT deduction cap. If Trump’s SALT proposal is passed, taxpayers would be able to deduct 100% of their state and local taxes paid. This proposal would offer a significant benefit to taxpayers in states with high state and local tax liabilities.
• Exemptions from Federal Tax: Trump proposed exempting certain types of income from federal taxation, including tips, overtime pay, and Social Security benefits. These exemptions would reduce taxable income for many Americans, particularly those in lower- to middle-income brackets.

Business Tax Incentives

• Bonus Depreciation: Trump has proposed the reinstatement of 100% bonus depreciation for qualified property, which would allow businesses to immediately deduct the full cost of eligible property in the year they are placed in service. Under current law, bonus depreciation is in process of phasing out, with the deduction reduced to 40% in 2025, 20% in 2026, and 0% in 2027.
• Qualified Business Income Deduction (QBI): The 20% QBI deduction for pass-through entities is also on Trump’s agenda for extension. This extension would provide tax relief primarily to small business owners and self-employed individuals.
• Research and Development (R&D): Trump has proposed to eliminate the TCJA’s mandatory capitalization and amortization treatment for R&D expenditures, and to restore the option to immediately expense such costs. Immediately expensing such costs would significantly benefit businesses, especially in the technology industry.
• Business Interest Deduction: Trump has proposed reverting the limitation on business interest deduction to be calculated on earnings before interest, tax, depreciation, and amortization (EBITDA) rather than earnings before interest and taxes (EBIT), thus increasing the interest expense businesses could deduct.

Expiring Tax Provisions at the End of 2025

Several key provisions from the TCJA are set to expire at the end of 2025, creating angst for many taxpayers. If these provisions are not extended, or made permanent, many taxpayers could face significant increases to their tax liabilities starting in 2026.

• Individual Income Tax Rates: As previously noted, the individual income tax rates established by the TCJA are scheduled to revert to pre-TCJA levels after Dec. 31, 2025.
• Standard Deduction Increase: The standard deduction nearly doubled under the TCJA to $15,000 for single filers and $30,000 for married couples filing jointly. If this provision expires, the standard deduction will revert to approximately $8,350 for single filers and $16,700 for joint filers.
• Child Tax Credit Reduction: Under current law, the child tax credit would decrease from $2,000 per child back down to $1,000 if not extended. Furthermore, the refundability of the credit could be narrowed significantly.
• Qualified Business Income Deduction: As previously mentioned, the QBI deduction is also set to expire at the end of 2025. This deduction has been significant for many small business owners and self-employed individuals as it allows them to deduct a significant portion of their income from taxation.
• Estate and Gift Tax Exemptions: The lifetime estate and gift tax exemption was significantly increased under the TCJA. If these provisions expire as scheduled, individuals would see their exemption drop from approximately $13.61 million in 2025 per person back down to around $7 million in 2026, increasing potential estate taxes for high-net-worth individuals.

As former President Donald Trump steps into his second term as President, his proposed changes to tax laws could have significant implications for both individuals and businesses. With several key provisions set to expire at the end of 2025, Congress will need to act quickly to avoid significant tax increases for millions of Americans. Given that Republicans will be in control of both the House and Senate, the upcoming legislative session shows promise that Trump will be able to pass his tax policy objectives.