As discussions heat up about extending the 2017 tax cuts and enacting new tax policies, many Americans wonder what it all means for their bottom line.
Whether you’re saving for a big expense or just trying to make ends meet, here are five ways Trump’s tax plans could impact your wallet.
1. Lower Income Tax Rates Could Save You Money
One of the key elements of Trump’s 2017 tax cuts was reducing marginal income tax rates, which benefited millions of Americans. If these rates are extended, you might continue to see lower federal income taxes deducted from your paycheck.
However, if Congress doesn’t act, these cuts are set to automatically expire, potentially leading to higher taxes for many households starting next year.
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2. A Bigger Standard Deduction
The 2017 tax cuts nearly doubled the standard deduction, simplified filing for many and reduced taxable income. For instance, a married couple filing jointly can deduct $29,200 in 2024 without itemizing.
Extending this provision could keep more money in your pocket. On the flip side, if it expires, many Americans might need to return to itemizing deductions, which could increase complexity and reduce savings.
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3. Small Business Owners Could Keep Their Breaks
Trump’s tax plans introduced a 20% deduction for certain small business income under pass-through entities like LLCs and S-corporations. Small business owners will continue reaping significant tax benefits if this deduction is extended.
However, if Congress fails to act, these entrepreneurs may face higher effective tax rates, leaving less cash for reinvestment and growth, and potentially higher prices as they struggle to remain profitable.
4. The Debate Over Deficit Impacts
One sticking point in the plan to extend tax cuts is their cost. By conventional budget rules, extending the cuts could add $4 trillion to the already-bloated federal deficit over the next decade.
While some lawmakers argue that extending current tax rates doesn’t technically “cost” anything, others caution that mounting deficits could eventually lead to spending cuts, future tax hikes or higher interest rates and inflation.
5. Potential New Tax Cuts on the Horizon
Trump’s campaign hinted at additional tax breaks, including eliminating federal income tax on tips, overtime and Social Security. Other provisions under consideration, such as a larger child tax credit or greater deductions for education expenses, would also help families.
However, these changes thus far are only discussed. What actually happens will depend on how Congress addresses the looming fiscal challenges.
Navigate Tax Changes
The future of Trump’s tax plans is still uncertain, but their outcome could significantly affect your finances. It’s critical to monitor these developments and adjust your financial strategy accordingly.
Whether it’s saving more now to prepare for potential increases or maximizing current deductions, planning ahead can help you stay ahead of the curve.
