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Yahoo
28-05-2025
- Business
- Yahoo
Trump's 2026 Budget Proposal: 7 Things Taxpayers Need To Know
President Trump's 2026 budget proposal, dubbed the 'One, Big, Beautiful Bill,' is a sweeping fiscal plan that aims to reshape federal spending and tax policy. The proposal, which has already passed the House, has stirred up plenty of debate on both sides of the aisle. 'At a high level, the proposal includes $163 billion in federal spending cuts, mostly hitting non-defense programs, and a fresh round of tax changes aimed at extending and expanding the 2017 Tax Cuts and Jobs Act,' Paul Miller, managing partner and CPA at Miller and Company LLP, wrote in an email. 'While the messaging frames it as pro-growth and middle-class friendly, there are winners and losers depending on where you sit financially.' Here are seven key takeaways taxpayers need to know. Find Out: Read Next: The 2017 Tax Cuts and Jobs Act (TCJA) was a major overhaul of the U.S. tax code that lowered most individual income tax rates, nearly doubled the standard deduction and expanded the child tax credit. Many of these provisions were set to expire at the end of 2025. 'By making the individual tax cuts from the TCJA permanent, tax rates would remain at their current lows and the expanded deductions/credits would continue. This keeps some taxpayers' bills lower in the near term, but also adds significantly to the long-term deficit in a major way,' explained Nik Agharkar, Esq., owner and managing member of Crowne Point Tax. The bill also includes a temporary boost in the standard deduction — $1,000 for individuals, bringing it to $16,000, and a $2,000 increase for joint filers, bringing it to $32,000. According to Agharkar, the middle class will avoid a sizable tax increase because key provisions like the 22% and 12% tax brackets — lowered from 25% and 15% pre-2017 — will remain in place. Other deductions, like for mortgage interest and state taxes, won't be subject to stricter limits. High-income earners stand to gain the most, Agharkar continued. The top rate would continue to be 37% instead of returning to 39.6% and the estate tax exemption would be permanently doubled. For businesses, the 20% pass-through business income deduction means owners of LLCs and S-Corps can write off a fifth of their income. Learn More: The proposal also mentions the elimination of taxes on tips, overtime pay and Social Security benefits. 'This proposal is aimed at boosting take-home pay for service and hourly workers, and would exempt all or a portion of these income types from federal taxation,' Laurie Smith, tax partner at Wiss & Company, wrote in an email. 'This proposal is temporary and includes income limitations.' But while these may appear beneficial, experts warn of potential challenges in the future. 'While these measures appear beneficial on the surface, they are projected to contribute between $5 and $11 trillion to the national debt over the next decade,' George Carrillo, CEO of the Hispanic Construction Council (HCC), former director of social determinants of health for the state of Oregon and former Democratic candidate for Governor of Oregon, pointed out. Seniors 65 and over with limited income will see a new temporary $4,000 deduction, called a 'bonus' in the legislation, CNBC reported. This is available whether they take the standard deduction of itemize their returns. The provision would apply to tax years 2025 through 2026 and would phase out for single filers with more than $75,000 in modified adjusted gross income or $150,000 for joint filers. This would help lower-income seniors, but Howard Gleckman, senior fellow at the Urban-Brookings Tax Policy Center, explained to CNBC that it's not a life-changing amount. A senior who brings in roughly $50,000 per year would see their taxes reduced by a little under $500 per year. One of the most closely watched components of the proposal is how the administration will address potential changes to the state and local tax (SALT) deduction cap. As it stands today, the proposal would raise the $10,000 cap to $30,000 for joint filers with modified adjusted gross income under $400,000. Once it exceeds that amount, the cap would be reduced but not below $10,000. This would be a significant benefit to taxpayers living in high-tax states like New York or California. 'This has been a point of contention for lawmakers from high-tax states — they want to see a full repeal of the cap,' Smith explained. 'Efforts to raise or repeal the SALT deduction cap aim to provide meaningful tax relief to residents in high-tax states, but they must be carefully weighed against the potential to significantly increase the federal deficit.' The child tax credit (CTC) in the 2017 TCJA temporarily doubled from $1,00 to $2,000, but the proposal would make this permanent and expand it further, increasing it from $2,000 to $2,500 per child until reverting back to $2,000 after 2028 and adjusting for inflation. There will also be stricter identification requirements to claim the credit, according to Smith. Another family focused proposal is the creation of MAGA savings accounts, short for Money Account for Growth and Advancement. 'These accounts would offer tax-advantaged savings options for middle-income families, similar to Roth IRAs or HSAs, but with broader usage flexibility,' Smith noted. Funds could be used toward education, similar to a 529 plan, but could also be used for starting a business or buying a home in the future. However, it would not benefit from tax-free withdrawals like the 529 plan. 'The budget proposes large cuts to Medicaid, food assistance and education, with work requirements attached to some benefits,' Miller wrote. 'The IRS would also see a significant budget cut, which might sound good at first blush but could slow down processing and enforcement.' The cuts would primarily affect low-income households. 'Housing Choice Vouchers, public housing funds, HOME grants and heating assistance (LIHEAP) are all on the chopping block. For a low-income renter, the new two-year cap on rental assistance could be life-changing,' Agharkar warned. This would impact middle-class Americans more indirectly. 'If federal support for affordable housing and infrastructure is withdrawn, state and local governments may raise taxes or fees to try to fill the gap,' Agharkar noted. 'Property taxes, sales taxes or local levies could increase so that cities can fund housing initiatives or community development projects that used to be federally financed.' Wealthy individuals don't rely on these programs, but Agharkar pointed out that they're still stakeholders in communities and the economy. An overlooked impact is the real estate market and employers. 'Cuts to rental assistance and home-building grants could lead to higher rents and housing shortages at the lower end of the market,' he added. 'In turn, this can spur housing instability that creeps up the income spectrum.' More From GOBankingRates How Far $750K Plus Social Security Goes in Retirement in Every US Region 9 Downsizing Tips for the Middle Class To Save on Monthly Expenses This article originally appeared on Trump's 2026 Budget Proposal: 7 Things Taxpayers Need To Know Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Yahoo
15-05-2025
- Business
- Yahoo
How High-Income Earners Build Giving Into Their Tax Strategy — and How You Can, Too
If you're able to give back to charity, it can be an incredibly rewarding experience. And while charitable donations support the causes you care about, they can also benefit you in the form of a valuable tax break. Learn More: Check Out: High-income earners often include charitable giving as a key part of their tax strategy. And even if you're not in a high-income bracket, you can still take advantage of many of these same tools. Here's a look at how the wealthy incorporate giving into their tax strategy — and how you can, too. High-income earners use charitable donations and tax-advantaged accounts to reduce their taxable income. 'High-income earners can realize the tax benefit of charitable giving by contributing to qualified charities, which directly reduces their taxable income,' said Nik Agharkar, owner and managing member of Crowne Point Tax. They may also use charitable giving to avoid capital gains taxes. 'At higher income levels, gifting appreciated non-cash assets — such as publicly traded securities, private equity interests or real estate — offers dual tax benefits: a deduction for the fair market value of the gift and avoidance of embedded capital gains,' said Andrew Constantinides, CFP, investment advisor at Neil Jesani Wealth Management LLC. 'This is significantly more efficient than giving cash,' he said. 'For clients facing concentrated equity positions or large liquidity events, charitable contributions can act as a release valve to manage both income and long-term capital gains exposure.' Explore More: Many high-income earners utilize tools like donor-advised funds (DAFs) and charitable remainder trusts (CRTs), which come with unique tax advantages. DAFs allow earners to front-load charitable deductions in high-income years while maintaining flexibility over how and when grants are distributed. 'It decouples the tax event from the charitable disbursement — a useful feature for clients anticipating fluctuating income or strategic giving goals,' Constantinides said. Charitable remainder trusts are more sophisticated tools often used in legacy planning. 'By donating highly appreciated assets into a CRT, a client can defer capital gains, receive an income stream and claim an immediate charitable deduction based on the remainder interest,' Constantinides said. 'This structure can be particularly powerful when integrated into estate and retirement planning, allowing clients to convert low-yield or illiquid assets into income while ensuring a lasting philanthropic legacy.' Even if you're not a high-income earner, there are still steps you can take to incorporate philanthropy into your tax strategy — and achieve both tax savings and lasting impact. 'Individuals should bunch multiple years of donations into one year to surpass the standard deduction threshold,' said Rachel Richards, CPA and head of product at Gelt, a tax company focused on high-income earners. 'They can also use employer matching, donate appreciated assets or set up recurring gifts for both impact and efficiency. It is very important to keep records and consult a tax advisor to ensure all giving is tax-optimized.' The specific strategies that work for you can vary, but having a plan helps ensure you get the most out of your giving, for both your taxes and the causes you support. 'Regardless of income, giving can be structured intelligently,' Constantinides said. 'Philanthropy should not only be generous, but also intentional and structured. When aligned with broader portfolio and estate goals, it becomes a source of tax efficiency and enduring impact.' 5 Steps to Take if You Want To Create Generational Wealth 6 Daily Habits of Financially Secure People Proven Ways Small Business Owners Are Protecting What They've Built Beyond the 401(k): 3 Strategies To Retire Comfortably and Still Leave Money Behind Sources: Nik Agharkar, Crowne Point Tax Andrew Constantinides, Neil Jesani Wealth Management, LLC Rachel Richards, Gelt This article originally appeared on How High-Income Earners Build Giving Into Their Tax Strategy — and How You Can, Too
