What Trump’s Tax Policies Could Mean for Clients

It’s important, then, that advisors and their clients stay on top of these issues as they evolve to assess the effects on each client’s individual situation. From there, you can put clients in the best position. For now, here's how several of the more likely policy changes could affect your clients.

Tax Cuts and Jobs Act Extension

During the 2024 campaign, Trump pledged to make most or all of the provisions of the 2017 tax overhaul permanent. Many of these provisions are included in the recent tax plan put forth by congressional Republicans, including:

• Permanently reduced individual tax rates per the 2017 legislation.
• Higher standard deductions and eliminating the personal exemption to make filing easier for many taxpayers. 
• Expanded child tax credits.

If Congress does extend these and other provisions, tax and financial planning will be framed by a continuation of the current rules.

Another aspect of the 2017 tax overhaul that is under discussion is the estate and lifetime gift tax exemption levels, which are scheduled to sunset after 2025. There are a number of proposals to extend these provisions, one to increase the exemption levels and even one to eliminate the estate tax altogether.

As a practical matter, this tax does not affect most clients, but you should be aware of any changes for clients with larger estates. If the exemption thresholds are allowed to reset, the federal estate, gift, and generation-skipping transfer tax exemption will revert to approximately $7 million in 2026.

The SALT Cap

Another component of the 2017 legislation is the $10,000 cap on the federal deductibility of state and local taxes. Trump is reportedly looking to remove — or at least raise — this cap, which would benefit clients unable to itemize because much of their state income taxes and local property taxes are not deductible.

Many feel that the SALT cap was politically motivated to affect taxpayers in predominantly Democratic states like California, New York and Connecticut, where state and local taxes tend to be high.

Removing the $10,000 cap would allow many clients to deduct higher amounts of their state income taxes paid as well as home property taxes. These deductions might be the difference between some clients being able to itemize deductions or not in a given tax year.

Eliminating Taxes on Social Security Payments

Social Security benefits may be subject to tax based on a recipient’s filing status and income level.

The income thresholds for determining taxes on Social Security benefits are:

On the campaign trail, Trump proposed eliminating taxes on these benefits, and lawmakers have introduced a bill to do so. While this would likely mean a tax cut for many of your clients, it would come at a cost.

As the Tax Policy Center points out, this tax cut would only benefit a minority of Americans — those who receive Social Security and have incomes high enough to be taxed on their benefits. But the resulting hit to the trust funds — by one estimate, it would move the insolvency date of the old-age fund to 2032 from 2033 and the Medicare trust fund to 2030 from 2036 — would fall on everyone who uses these programs.

Here are some examples of the approximate amount of taxes due on Social Security benefits under current law.

The impact of this tax cut on on your clients would be based on their individual situation, including their income and filing status.

While this measure could benefit many of your clients in the short term, the possible longer-term impact of eliminating these taxes could prove detrimental to your clients and others who count on Social Security and Medicare as part of a comfortable retirement.

Tariffs

A lot of publicity has surrounded potential tariffs on goods entering the United States from Canada, Mexico and China. Trump also supports implementing reciprocal tariffs on countries that impose tariffs on U.S. goods.

While tariffs are not a direct tax on U.S. consumers, clients would undoubtedly feel their effects in the form of higher prices on a range of imported goods. The effect on prices overall from these tariffs could dwarf the impact of bird flu-influenced higher egg prices.

Inflation spikes will be especially challenging for retired clients and those nearing retirement, with prices rising faster than any cost-of-living adjustments on Social Security or a pension they might be receiving. It’s important to work with this cohort to help ensure that their retirement accounts and other assets for retirement are managed appropriately to offset higher prices.