Trump Tax Law Changes – 2025 and Beyond
Acknowledging the Changing Landscape
With Donald Trump re-elected as President and Republicans controlling both the House and Senate, the stage is set for potential tax reform reminiscent of his previous administration. During Trump’s last term, the Tax Cuts and Jobs Act (TCJA) brought about some of the largest tax reform in decades, reshaping how individuals and businesses approach taxes. Key changes included lower tax brackets, a higher standard deduction, and the introduction of a cap on state and local tax (SALT) deductions.
So, what do the potential Trump tax law changes look like moving forward? With unified Republican leadership, there’s renewed momentum for extending or expanding the TCJA provisions, many of which are set to sunset at the end of 2025.
Over the past few weeks, I’ve had several conversations with clients about the election, the markets, and what comes next. Whether you’re optimistic about the opportunities on the horizon or concerned about potential challenges, understanding how these changes could impact your financial situation is key to staying prepared.
Key Tax Provisions Under Discussion
The TCJA, one of the most impactful tax reforms in recent history, will sunset at the end of 2025. Without legislative action, several provisions could revert to their pre-2018 levels. However, Trump’s campaign proposals suggest an intention to extend or modify certain elements.
Can’t Remember What Things Were Like Pre-2018?
You’re not alone! Our side-by-side comparison of pre-TCJA and current tax provisions can help clarify what may change.
A Note on Legislative Uncertainty
It’s important to recognize that much of this discussion is speculative. Any changes to the current tax structure will require Congressional approval, and the outcome will depend on legislative priorities and political negotiations. While this blog highlights potential scenarios, it’s critical to stay adaptable as changes unfold.
Potential (And Proposed) TCJA Changes to Watch for in 2025 Tax Legislation
Tax Area | Likelihood of Changes | Possible Changes |
---|---|---|
Individual Tax Brackets | Low | N/A |
Standard Deduction | Low | N/A |
SALT Deduction Cap | High |
|
Itemized Deductions | Medium |
|
Child Tax Credit | Medium |
|
Estate Tax | Low | N/A |
Other Tax Cuts | Medium |
|
Clean Energy Credits | Medium |
|
*Potential changes proposed by the Trump campaign and/or Republican lawmakers.
Source: Adapted from Kitces.com
Implications for Those Still Working
Marginal Tax Rates and Income
While significant changes to marginal tax rates are unlikely under a new Trump administration, it’s still important to consider how federal income tax brackets interact with your financial decisions. If they remain the same, stable tax brackets provide predictability, which can be advantageous for planning both short-term and long-term strategies.
Things to Consider:
-
- Maximize Current Tax Opportunities: With tax brackets expected to remain steady (and lower than they were before 2018), now is a good time to evaluate strategies that can lock in today’s rates, such as Roth conversions or strategic withdrawals from pre-tax accounts.
- Monitor Phase-Out Ranges: While marginal tax brackets may not change, income thresholds for deductions, credits (such as the Child Tax Credit), or certain retirement account contributions could be adjusted. Pay close attention to how your income aligns with these limits to avoid missing out on valuable tax benefits.
- Optimize Retirement Contributions: Pre-tax retirement accounts, like 401(k)s or traditional IRAs, remain a powerful tool to reduce your taxable income. Conversely, consider funding a Roth IRA (if eligible) or a backdoor Roth IRA for tax-free growth if you expect your retirement tax rate to remain stable or increase.
- Leverage Capital Gains Rates: If your taxable income keeps you in a lower bracket, you may qualify for the 0% capital gains tax rate. Evaluate whether harvesting gains or rebalancing your portfolio aligns with your current tax situation.
Potential Action Steps:
-
- Evaluate Your Income and Taxable Events Annually: Even with stable rates, tracking how income, bonuses, or investment sales affect your bracket can help you make informed decisions.
- Contribute Strategically: Use pre-tax or Roth accounts based on your current tax rate and expectations for future income needs.
- Review with a Professional: Tax brackets staying steady doesn’t mean your situation stays static. A financial advisor or CPA can help ensure your plan adapts to any other changes, such as income thresholds for deductions or credits.
By focusing on optimizing within stable brackets, you can ensure that your financial strategies align with today’s tax landscape while preparing for potential changes in the future.
State and Local Tax (SALT) Deduction
The $10,000 cap on SALT deductions has been a source of frustration for many in high-tax states. If the cap remains, it could continue to limit the benefits of itemizing deductions.
Potential Action Steps:
-
- Optimize Itemized Deductions: Maximize other deductions, such as mortgage interest or charitable contributions, to offset the SALT cap’s impact (more on this below).
- Evaluate Relocation Options: Moving to a lower-tax state might make financial sense for some families. For most of my clients, this remains more of a thought experiment than a realistic consideration. Family and lifestyle are (and should be) the drivers of big decisions like this, not taxes.
- Analyze Timing for Large Purchases: If the SALT cap is eliminated, delaying property tax payments or other deductible expenses until after the new law takes effect could be advantageous.
Employer-Sponsored Plans
Corporate tax rate reductions under the TCJA benefited many businesses, allowing them to enhance employee benefits. If these rates remain low, your employer might continue offering competitive retirement plan matches or other perks.
Potential Action Steps:
-
- Maximize Employer Benefits: Contribute enough to capture the full employer match on retirement plans.
- Exercise Stock Options Strategically: Exercising stock options in a lower-tax year could reduce your overall tax burden.
For Current Oregon PERS Members
Oregon PERS employees have unique considerations under potential Trump tax law changes.
Potential Action Steps:
-
- Pre-Tax Contributions: Whether to your pretax 457(b), 403(b) or your Individual Account Program (IAP), these contributions reduce taxable income now, but if federal tax rates remain low, the immediate benefit may decrease slightly. However, the long-term advantage of tax-deferred growth is still significant.
- Individual Account Program (IAP): Since contributions to the IAP are pre-tax and growth is tax-deferred, federal income tax rates at the time of withdrawal will determine the tax impact. If lower tax rates are extended, withdrawals from the IAP could result in less tax liability, providing more retirement income. There is a unique opportunity for members subject to the EPSA program to direct additional voluntary contributions to their account. To learn more, check out our blog, What is the Oregon PERS Individual Account Program (IAP)?
- Evaluate Tax Diversification: Balancing pre-tax and Roth contributions can hedge against potential future tax increases while maintaining flexibility. I view this as a way to split the difference between tax savings today and the unknowns of what tax rates will be down the road.
Implications for Retirees
Required Minimum Distributions (RMDs)
For retirees, while significant changes to tax brackets are unlikely, RMDs still require thoughtful planning to manage their tax impact. Roth conversions and Qualified Charitable Distributions (QCDs) are two effective strategies to reduce the tax burden associated with RMDs, helping to optimize your retirement income.
Roth conversion strategies tend to work best for retirees who:
- Are early in retirement, before RMDs begin or Social Security benefits are claimed, when taxable income is relatively low.
- Have after-tax dollars available to live off of and pay the conversion tax, avoiding the need to use retirement funds.
QCDs, on the other hand, can be an excellent option for retirees who are over 70.5 want to meet their RMD requirement while also supporting charitable causes. A QCD allows you to direct up to $105,000 (per individual, adjusted for inflation annually) from your IRA to a qualified charity, satisfying your RMD without increasing your taxable income.
Potential Action Steps:
-
- Implement a Multi-Year Roth Conversion Strategy: Gradually convert traditional IRA balances to Roth IRAs over several years to minimize the tax impact in any one year. This approach spreads the tax burden and helps you manage your tax bracket effectively.
- Utilize Qualified Charitable Distributions (QCDs): If you are 70½ or older and have charitable intentions, use QCDs to satisfy part or all of your RMD while reducing your taxable income. This strategy fulfills your RMD obligation and provides tax benefits if you no longer itemize deductions under the current standard deduction limits.
- Coordinate with Your Income Sources: If you’ve delayed Social Security or have minimal other income, this “low-income window” may be the ideal time for Roth conversions, maximizing the tax benefits of this strategy.
Combining QCDs and Roth conversions can create a tax-efficient plan for managing RMDs, especially for retirees with diverse financial goals, such as reducing future tax burdens and leaving a legacy for heirs or charities.
Estate and Gift Tax Planning
The estate and gift tax exemption, significantly increased under the TCJA to $13.61 million per individual for 2024 ($13.99 million in 2025), is set to sunset in 2026 and revert to an estimated $6.5 million. However, this is one area of the tax code that is less likely to change under a new Trump administration, as both the exemption level and current rules have historically had bipartisan support.
While major changes to estate tax laws are unlikely, this remains a critical area of planning for families seeking to transfer wealth efficiently. Regardless of whether this exemption gets extended, if legacy gifting is a part of your wishes, don’t let the potential tax consequences delay these plans.
Potential Action Steps:
-
- Review Your Estate Plan: Regular updates ensure your plan aligns with your goals and the latest laws, even if those laws remain unchanged.
- Consider Lifetime Gifting: With the exemption at $13.61 million, utilizing this historically high limit before it potentially sunsets after 2025 can help reduce your taxable estate. Even if the limit remains unchanged, annual gifting strategies (currently $18,000 in 2024 and $19,000 in 2025) can be a simple and effective way to transfer wealth over time.
Proactive planning is essential to ensure your legacy is passed on according to your wishes while minimizing any tax exposure. Most of my clients want to pay their fair share in taxes, and not more.
Investment Income
Favorable tax treatment for capital gains and dividends may persist, creating opportunities for retirees to optimize their strategies.
Potential Action Steps:
-
- Harvest Gains or Losses: Sell appreciated assets during favorable tax periods.
- Reevaluate Portfolio Allocations: Consider tax-advantaged investments like municipal bonds if tax rates rise.
For Retired Oregon PERS Members
Retired Oregon PERS members face unique considerations due to how their pensions and benefits are taxed at both the state and federal levels. Understanding these implications can help you better plan for the future.
Tax Remedy Payments
Eligible Tier One retirees residing in Oregon receive a “tax remedy” increase to their PERS pension to offset the state income taxes on their benefits. However, this remedy is only available to Oregon residents. If you are considering relocating out of state, be aware that you may lose this benefit. You can learn more about this by reading our blog: The Oregon PERS Tax Remedy: A Key Benefit for Tier 1 Members.
Potential Action Step:
-
- Review Residency Decisions Carefully: If you’re weighing the pros and cons of relocating, factor in the potential loss of the tax remedy benefit against the cost-of-living or tax advantages of moving to another state.
State Tax Withholding Rules
Oregon imposes specific withholding rules for PERS benefits. For example, retirees filing as single with annual gross PERS benefits over $100,000, or married filing jointly with benefits over $200,000, must use zero allowances for state tax withholding purposes. These rules can affect your net income and overall tax strategy.
Potential Action Step:
-
- Monitor Withholding Accuracy: Review your withholding elections annually to avoid underpayment penalties or unexpected tax bills. A CPA familiar with PERS benefits can provide tailored guidance.
Federal Tax Rate Impacts
Federal tax rates directly impact the net income retirees receive from their PERS pension. If lower tax brackets are extended, retirees may see a smaller portion of their benefits taxed at higher rates, resulting in more net income. Conversely, if rates increase, PERS pensions could face a higher tax burden.
Potential Action Step:
-
- Plan Distributions Thoughtfully: Work with a financial advisor to coordinate withdrawals from other taxable accounts alongside your PERS pension. Strategic planning can help minimize tax exposure while optimizing retirement income.
Cross-Cutting Considerations
Charitable Giving
If itemized deductions become more favorable, reassess your charitable giving approach to maximize tax benefits.
Potential Action Steps:
-
- Bunch Donations: Consolidate multiple years of donations in a single year to surpass the standard deduction threshold.
- Explore Donor-Advised Funds: These provide flexibility and immediate tax benefits. They’re especially useful in high tax years (selling property, for example), and can be funded with appreciated assets for further tax savings.
- Qualified Charitable Distributions (QCDs): As noted earlier, QCDs can be a powerful way to keep your taxable income down. While they can help fulfill your required minimum distribution (RMD), if you’re over 70.5, you can use them to fulfill charitable intent tax-efficiently, even if you’re not yet subject to RMDs.
Want to learn more about tax-efficient charitable gifting? Check out our blog: Tax-Efficient Giving: Unlocking Smart Philanthropy.
Health Savings Accounts (HSAs)
HSAs offer triple tax advantages—pre-tax contributions, tax-deferred growth, and tax-free withdrawals for medical expenses.
Potential Action Steps:
-
- Maximize Contributions: Contribute the maximum allowable amount each year.
- Plan Withdrawals Strategically: Use funds tax-free for qualified medical expenses, or after age 65, for non-medical purposes (subject to income tax).
Timing of Major Financial Decisions
When tax law changes are anticipated, the timing of significant financial moves—such as selling a business, exercising stock options, or making major purchases—can have substantial tax implications.
Potential Action Steps:
-
- Evaluate Timing for Large Asset Sales: Selling assets like a rental property, business, or other investments before a tax increase could save significant capital gains tax.
- Coordinate with a Tax Advisor: Work closely with a CPA or financial advisor to align the timing of these decisions with favorable tax rules. Proper timing could significantly reduce your overall tax burden.
Preparing for What’s Ahead
Tax reform is complex, and the future remains uncertain. By staying informed and proactive, you can position yourself to adapt to changes and take advantage of opportunities.
Partnering With Professionals
Navigating these nuances requires more than just awareness. A thoughtful, tailored financial plan is essential. Whether you’re working, retired, or preparing for a major life transition, partnering with a financial advisor can help you evaluate how potential tax law changes may impact your finances.
If you’d like to explore these possibilities further, I welcome the conversation.