Major Trump tax breaks that were signed into effect in 2018 are set to sunset at the end of 2025. The Tax Cuts and Jobs Act was the most significant overhaul of the tax code since 1986, and while we've all benefited, many people are unaware of the particulars that apply to their own financial situation. Most significantly, the bill:
- Reduced tax rates for corporations from 35% to 21%, boosting profits, jobs, and in turn, the stock market.
- Increased the standard deduction and reduced tax rates for individuals and married couples.
- Doubled the estate tax exemption from $5.43 million (currently $13.61 million in 2024, or $27.2 million per couple), meaning fewer people have to pay estate taxes.
- Increased child tax credits.
- Reduced the Alternative Minimum Tax.
Why do I bring this up now? The President and Congress elected this November will be the ones who choose whether to extend these cuts or let them expire. If they aren't extended, we'll all be paying higher taxes than we previously were. But the most significant effect from a financial perspective actually has to do with corporate taxes. If the corporate tax rate is increased, companies won't be able to hire as many workers and their profits will be immediately decreased - meaning their values (AKA stock prices) will go down. This will have overarching effects on the economy and the stock market.
What do the Presidential candidates have to say about this? Trump has proposed further cutting the corporate tax from 21% to 15% for companies who produce in the United States. Alternatively, Harris has proposed increasing the corporate income tax back up to 28%. Goldman Sachs analysts estimate that at Harris' 28% rate, earnings of S&P 500 companies would take a 5% hit while Trump's proposed cut would boost them about 4%.
Whatever happens this November or next year, we don't want you to worry. Know that we are watching the horizon for any changes and will reach out if adjustments need to be made to your investments or estate plan. For example, if corporate income taxes are raised, there might be some tweaks that can soften the blow and better optimize your portfolio for that situation. We can help with that. Additionally, if the estate tax exemption is cut back (it's estimated it would be about $7M per person), high net worth individuals might find they need to do some more strategic estate planning in order to reduce their estate tax liability or plan for liquidity to help their heirs pay the taxes. We can help with that too.