It’s no surprise that Donald Trump's second presidency means different things to different people for many reasons. However, polls show that “the economy” was top of mind for about 40% of voters during the election. Supporters reportedly believed the now-incoming president would relieve financial strain on everything from gas and grocery prices to taxes.
However, a recent survey reveals that many taxpayers now worry that Trump's tax plans might negatively impact them as well as benefits like Medicare and Social Security. The same survey shows that while about half of Americans know of Trump's proposals, only 20% of Democrats and Republicans and 12% of independents claim to understand them fully.
So, with the inauguration just around the corner, it seems like a good time to review what we know about Trump’s tax plans. We’ll also look at potential “tax traps to avoid when the new administration takes office. These include legislative and economic issues (aka "the fine print"), behind the tax promises, that can impact you.
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Trump tax plan 2025
Trump's tax proposals primarily focus on extending the provisions of the 2017 Tax Cuts and Jobs Act (TCJA), sweeping tax legislation enacted in his first term. (Note: The TCJA is still in effect, but many key provisions are set to expire after this year if Congress doesn’t act.)
Since the campaign, the incoming president has floated several other proposals, including eliminating taxes on Social Security benefits, tip income, and overtime pay and implementing across-the-board tariff hikes.
To help illustrate, the following chart lists some of Trump's tax plans, along with key pros and cons.
| Tax Idea | Pros | Cons |
|---|---|---|
| Make individual TCJA tax cuts permanent | Tax cuts for all income groups would be maintained, so extending these cuts could provide continued financial relief across various income levels | Biggest benefit would go to those with higher incomes, while exacerbating the federal deficit, which could worsen |
| Lower corporate tax rate to 20% or 15% | Could encourage business investment and job creation | Typically benefits large corporations and wealthy shareholders more than “average workers” |
| Universal 20% tariff on imports, 60% on Chinese imports | The argument is tariffs may protect American jobs by encouraging domestic production | Will likely increase prices for U.S. consumers on many everyday items and might offset any tax savings individuals experience from other proposed tax changes |
| Exempt overtime pay and tips from federal tax | Could provide relief for some workers | Could be subject to abuse by some employers and not benefit those intended, plus federal revenue loss |
| End taxes on Social Security benefits | Eliminating taxes on Social Security could provide significant relief for retirees | Could disproportionately benefit higher-income earners, hasten trust fund insolvency, and lead to substantial revenue losses, jeopardizing future benefits |
| Make TCJA estate tax cuts permanent | A high exemption allows greater flexibility in wealth transfer. Additionally, if the lifetime exemption reverts, families may face higher estate taxes | Primarily benefits wealthy individuals and families |
| Raising or ending the SALT deduction cap | If the SALT cap is repealed or raised, high-income earners and residents in many high-tax states would see significant tax relief | Data show SALT benefits disproportionately favor higher-income individuals and could contribute to a growing deficit, leading to other budgetary trade-offs |
| Eliminating clean energy tax incentives | Could provide an offset for planned tax cuts | Eliminates popular tax incentives, potentially leading to higher consumer costs and slower adoption of clean energy measures |
While these measures have been framed as beneficial for economic growth and tax relief, they also raise concerns.
A key issue involves cost and impact on the country’s fiscal health, as various estimates show Trump's tax proposals would significantly increase the federal deficit.
- The Committee for a Responsible Federal Budget projected a $7.75 trillion increase through 2035.
- The Penn Wharton Budget Model estimated a $4.1 trillion increase over 10 years.
- The Tax Foundation suggests a potential $7.8 trillion cost of Trump tax cuts with about $4.7 trillion in offsets.
Trump has said tariffs will mostly pay for these tax cuts, though economists debate the feasibility of that approach.
Key offsets will likely come from axing green energy credits and making significant spending cuts, including possibly to government agencies and programs like Medicaid and SNAP.
Potential tax traps in a second Trump presidency
So, what can you do about all of this uncertainty? Here are a few tax traps to avoid as a new administration begins and looks to make significant tax policy changes.
1. Assuming tax cuts are coming or will be permanent
Taxpayers should be cautious about assuming the individual income tax cuts, including the higher standard deduction and lower top income tax rate, from the TCJA will be permanent.
While Trump has vowed to keep these cuts, he needs Congressional approval, and negotiations may be challenging due to the slim Republican majority in the U.S. House of Representatives.
Additionally, promises to end taxes for workers with tip income or overtime pay face uncertainty — concerns about revenue loss and economic impact could hinder progress in Congress.
What can you do? Be prepared for potential tax increases. (You'll be pleasantly surprised if you end up with a tax cut instead.) Also, keep a close eye on tax credits and deductions you typically claim to be prepared for any reductions in benefits.
If you receive tip income or overtime pay, don’t expect the promised tax relief, and continue to try to maximize your income. Keep detailed records, review your withholdings, and set aside a portion of your pay for unexpected liabilities when you can.
2. Overlooking the impacts of tariffs
Trump has suggested implementing substantial tariffs, including a 20% general tariff on all imports and a 60% tariff on Chinese goods. The likelihood of these tariffs coming to fruition could be high.
However, many economists warn these tariffs will likely lead to higher prices on everyday consumer goods. As Kiplinger has reported, everything from electronics, groceries, and clothing to appliances, furniture, and toys could become pricier.
What can you do? To prepare for tariff-driven price hikes, consider stocking some essentials and carefully timing big purchases. Explore domestic products or second-hand items, compare prices, and take advantage of sales.
3. Delaying taking advantage of clean energy tax credits
If you're considering an electric vehicle (EV), now might be the right time. Thanks to the Inflation Reduction Act (IRA), eligible buyers can receive a federal EV tax credit of up to $7,500 for new qualifying EVs and $4,000 for used ones. There is also a tax credit for solar panels in the IRA that has paid out billions to eligible taxpayers.
However, these incentives could be at risk when Trump returns to office, given his past efforts to reduce clean energy support and indications from his transition team that the EV tax credit may be going away. While dismantling these programs will involve legislative and practical challenges, uncertainty about future tax credits means waiting to purchase could cost you valuable benefits.
What can you do? If you’re eligible, consider making a more immediate purchase of an EV if that's what you are interested in, or completing a solar panel installation sooner rather than later. Those moves could secure existing tax credits and support the transition to cleaner energy.
4. Counting on a SALT cap change to help your tax bill
Another potential trap involves the state and local tax (SALT) deduction cap, set at $10,000 during Trump's first term. Although Trump has suggested eliminating this cap, significant opposition exists partly due to its estimated $1.2 trillion cost over ten years.
Some lawmakers have expressed concern about the cap primarily benefiting high-income households in states with high taxes. A SALT raise or repeal compromise proposal to double the cap has been mentioned, but some key House Republicans believe that might not offer sufficient relief.
What can you do? Explore potential state-level workarounds, time your tax payments carefully, and consider boosting contributions to tax-advantaged accounts as a potential offset. Stay informed about potential legislative changes. Also, consider working with a tax professional to develop a personalized strategy.
5. Neglecting retirement and estate planning
As you plan for retirement, don’t overlook estate planning, no matter who’s in the White House. While Trump has proposed eliminating taxes on Social Security benefits, this change remains highly uncertain and would require significant legislative action.
What can you do? Don’t count on an end to taxes on Social Security income. Find ways to minimize those taxes, like strategically managing your retirement accounts, timing withdrawals carefully, and exploring tax-efficient strategies. The key is to reduce your taxable income while maximizing your benefits — and when in doubt, consult a tax professional who can tailor advice to your situation.
Finally, it's also important to consider how changes in estate tax laws may affect your financial strategies.
The lifetime gift and estate exemption for 2025 is $13.99 million per person, allowing significant wealth transfers without estate taxes. (Couples, up to $27.98 million.) However, unless Congress intervenes, the higher exemption base will expire at the end of the year and potentially revert to about half in 2026.
Note: The new Republican-led Congress will likely work to maintain a lower exemption.
What can you do? With your estate planning, remain proactive and plan strategically. Explore options like gifting assets, setting up trusts, or making Roth conversions to maximize the current exemption.
As with all these situations, working with finance and estate planning or tax professionals can help you create strategies to adapt to potential legislative changes.
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