The Trump Tax Cuts Could Be Here To Stay—What It Means For Your Money

When President-elect Donald Trump was on the campaign trail, he promised to extend the Tax Cuts and Jobs Act (TCJA) of 2017. And with a Republican majority in the House and the Senate, he could more easily make good on that promise. 

Some financial advisors are readying their clients for the possibility of an extension of the TCJA, which is set to expire at the end of 2025. The TCJA made sweeping changes to income tax rates, the estate tax exemption, and the state and local tax (SALT) deduction, among other things. 

“I think it’s a relatively strong bet that it [the TCJA] is extended,” said Bill Harris, former CEO of Intuit. “That doesn’t change things, but it does sort of eliminate the worry about a number of other things happening.”

Income Tax Rates Could Remain The Same

The TCJA reduced marginal income tax rates for Americans of nearly all income levels.

For example, those in the highest tax bracket had a marginal tax rate of more than 39% prior to the TCJA. Because of the TCJA, that top tax rate fell to 37% and could stay at that level into 2026.

Maryanne Gucciardi, a certified financial planner (CFP) at Wealthmind Financial Planning, notes that the lower marginal tax rates have been beneficial for her clients’ cash flow and tax planning. However, she doesn’t recommend making financial decisions solely based on what will happen to the marginal tax rates.

“If something is already in the plan for this year, I wouldn’t delay action simply because the TCJA might be extended,” said Gucciardi. “For example, if tax rates are currently low and expected to stay low, completing a Roth conversion now allows for extra time to benefit from tax-free growth.”

What Happens To the SALT Deduction Is Up in the Air

For taxpayers who itemize rather than take the standard deduction, the SALT cap limited the amount of state and local taxes they could deduct from their income to $10,000. Before TCJA, there was no cap.

Experts note that high-income individuals, particularly in high-tax states, were hurt by the SALT cap in the TCJA.

“Most of our clients tend to own large, expensive homes in states with high income and property taxes, and they don’t fully benefit from being able to write much of it off come tax time,” said Malcolm Ethridge, a CFP in Washington, D.C. 

On the campaign trail, Trump claimed he wanted to end the SALT deduction cap, but doing so could be pricey. The SALT cap deduction was first implemented to offset the cost of other provisions in the bill, and getting rid of it could balloon the budget deficit.

Planning To Leave An Inheritance? You Should Still Create An Estate Plan

The estate tax exemption doubled thanks to the TCJA. Now, when individuals pass away, they can give away up to $13.6 million to their heirs without incurring the estate tax, which can be up to 40%.

Prior to the TCJA, the estate tax exemption limit was $5.49 million in 2017. If the TCJA expires, the exemption limit will revert to the 2017 level adjusted for inflation, or roughly $7 million.

While it’s possible that the increased estate tax exemption will be extended, experts still recommend consulting an estate attorney in the meantime.

“If estate tax exemptions come down and you did nothing, you will have cost your family quite a bit of money due to a lack of planning,” said Dennis Huergo, Vice President at Wealth Enhancement Group.

Huergo also said because of the decisive Republican electoral victory, deregulation could boost the equity market, resulting in more people facing estate tax issues.

“Implementing estate freezing techniques early on can prevent the issue from getting worse over time,” he said.