What you need to know
- Donald Trump, the President-elect of the United States proposed many policies to reduce taxes during his campaign. These could be beneficial for taxpayers now.
- Deferring income and accelerating deductions may be a good idea if your estimated tax bill for 2025 is lower than that of 2024.
- By deferring some of your 2024 income into 2025, you can increase the amount that is tax-deductible. Accelerating deductions is the process of taking on expenses that you will incur in 2025.
Donald Trump's impending presidency has U.S. taxpayers anticipating lower taxes in 2025. For those who do, tax experts say it's possible to set yourself up to benefit with your 2024 filing.
Some experts say you can save money by paying off deductible expenses or putting some income in the following year.
"We might see lower tax rates, and so if you think potentially the rates are going to be lower [in 2025], then, of course, you would want to defer your income to the next year when the rates might be less," said Susan McGuire, tax director at Green Growth CPAs.
Trump talked about several tax plans on his campaign tour. Here's some background on those proposals—and some tactics that could help if you expect lower taxes next year.
Americans are looking at a range of Trump tax proposals
Trump made a number of proposals regarding taxes during his presidential campaign. He pledged to make most of the provisions of the 2017 Tax Cuts and Jobs Act (TCJA) permanent. This law nearly doubled the standard deduction, increased the Child Tax Credit, and raised the estate tax exemption.
Also, he proposed to exclude Social Security benefits from the income tax. The 40% who pay tax on their benefits are the beneficiaries. Tax Policy Center says that this tax cut will primarily benefit those earning between $63,000 and $200,000. The campaign of Mr. Trump also included new tax credit for family caregivers who are not paid and increased the Child Tax Credit by $5,000 to $2,000 per child.
In the Republican Platform, it was stated that a new administration would abolish taxes on tipping and overtime. The Congressional Research Service estimated cutting taxes on tips would save restaurant and hospitality workers—who make up 3.3% of income tax filers—between $730 and $2,170 in taxes.
Consider Deferring Some Income From 2024 If You Expect To Pay Less Tax in 2025
By deferring income, you can push some of the money you’ll make in 2024 to 2025. This will allow you to pay less tax on your future earnings.
"You're taking something that would be the salary you normally have to pay [taxes on], and then you defer it for a future tax year," McGuire said.
Maximize your contribution to your Health Savings Account or traditional retirement account. You will have a lower Adjusted Gross income (AGI) and pay less tax.
You can delay the income that you earn throughout the year. If you are a landlord, for example, you can ask the tenant of your rental property to pay December’s rent in January. You can request that your employer delay the payment of your bonus to next year if you’re not self-employed. McGuire suggested that self-employed people or independent contractors could delay their invoices.
Deferring your income and capital gains taxes is also possible if your employer gave you an incentive option to purchase stock in 2024, and if your hold on to your options until next year.
You can lower your tax liability in 2024 by increasing deductions.
McGuire said that if you can reduce your bill for 2024 by taking on expenses which were originally planned to be paid in 2025, but are now able to do so before the end of this year.
"[People] accelerate deductions into the current year so that they can use them," McGuire said. "Same reasoning [as deferring your income]. If you think tax rates are higher now, then you want to take as many deductions as you possibly can."
It is better to donate to charity before the end of 2024 if you plan to give in 2025. This way, your charitable contributions will be deducted from 2024’s bill. Prepaying expenses for 2025 is also possible. You can, for example, pay the January 2025 property tax or mortgage this month.
If your medical costs in 2024 are on the verge of reaching 7,5% your Adjusted Gross income, you can also make your anticipated medical purchases prior to year-end. You can maximize your deductions if you plan to purchase new glasses in 2025 or have your teeth cleaned.
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