Trump Tax Plan 2025: How Trump Tax Policy Will Reshape Taxes

The Current Environment and Trump Tax Policy

Nobody can predict exactly what 2025 and the next several years will bring. Still, the overwhelming probability is that the tax environment will remain at least as friendly as it is or improve significantly. However, understanding the Trump tax policy will be essential for anticipating changes and preparing accordingly. 

If we had to guess, we’d say that it is equally likely that tax rates will increase at some point in the future. We don’t write this with any degree of certainty as to when and by how much tax rates will increase. We write that because U.S. tax policy generally moves in long-arcing trends. Years in which public and political sentiment favors tax reductions tend to be followed by years in which sentiment favors tax increases, which in turn are followed by a desire for reductions.

In other words, there is a see-saw pattern, and it behooves us to recognize that as we plan tax strategy for both the immediate and more distant future.

Tax Strategies To Consider Under the Trump Tax Plan 2025

With this sense that the next several years are likely to see tax rate reductions and that further out, we will see rate increases, we suggest considering the following strategies:

Review Your Asset Allocation To Optimize Taxes And Returns

Your asset allocation will determine much of your total investment return over the years, but it also influences your tax liability.

The allocation influences the amount of ordinary income you earn, the capital gains you realize, and the timing of both depending on how you split between passive and active strategies.

Since these income sources are taxed differently, you should review your allocation to decide what type of income you want to emphasize in various years going forward.

Switch Between Roth 401(k) and Regular 401(k) Contributions

There is a point where the benefit of tax deferral using a regular 401(k) is surpassed by the benefit of the tax-free nature of growth in a Roth 401(k). 

This scenario is a complicated issue, requiring some detailed analysis. Still, for people with large portfolios and a likelihood that their future tax rates will be as large as, or larger than, their current rates, it may make a lot of sense to forgo the tax benefit on current contributions to receive future tax-free income.

Consistently Tax Loss Harvest

Tax loss harvesting is one of the few freebies in the U.S. tax code, and it is easily implemented without compromising your investment portfolio. 

The concept is simple: sell a security when it is at a loss (thus taking a “tax loss”), immediately reinvest in a similar security or index fund (so you aren’t “out of the market”), and then reverse the transaction in 31 days (to avoid “wash sale” rules). Every capital loss you realize in this manner can be used to offset capital gains in the same year or any future year. 

Many people do this occasionally or only look at it around year-end, but this is something to consistently review during the year, especially during a market downturn. 

Fast Track Charitable Contributions

If you are considering making sizeable charitable contributions over several years, consider making them all in one year, especially in high-tax years. To receive a deduction for contributions, you have to get total deductions over the itemized deduction threshold.

If your income tends to vary over the years due to bonuses or vesting stock options or grants, then in those “high-income years” (when your taxable income spikes), make multiple-year planned contributions in that one year.

Utilized a Donor Advised Fund For Charitable Contributions

As a corollary to the above strategy, if you’re not sure which charities you want to favor over the years but know you will be making contributions each year somewhere, you should consider opening a Donor Advised Fund.

A Donor Advised Fund (most custodians offer them) qualifies for the charitable deduction but lets you keep the funds on hold, invest them within some guidelines, and then distribute them out in future years to the charities you pick each year. You get the full charitable deduction in the year you put money into the fund, and you can dole out the money when and to whom you want.

Time Gifts With Future Tax Rates In Mind

For those who want to reduce the amount of their potential estate taxes, gifting to estate tax-favored entities like irrevocable trusts and family limited partnerships will make a lot of sense.

The best way to maximize the benefit of these strategies is to use them early (so future growth escapes the estate tax), especially now since the lifetime estate exclusion is so significant. Each person can gift up to $13.6 million without triggering an estate or gift tax. You will forfeit a significant tax break if that lifetime exclusion is reduced to the $7 million level discussed above.

Additionally, the earlier you gift, the more time the gifted asset can appreciate, and all that appreciation can be exempt from future estate taxes.

Consider a Backdoor Mega Roth

If you have a Roth option in your 401(k), check with your employer to see if they will accept large after-tax contributions to the regular 401(k). Because of the weirdness of tax law, the order of the transaction is important.

After you make the maximum amount of your regular 401(k) contributions, if you make a large after-tax contribution, you can request that this after-tax amount be immediately transferred into the Roth side of the 401(k).

Doing this immediately makes it easier to track and file income tax returns. Making the large backdoor contribution allows you to position significant amounts of money and growth for tax-free withdrawals in the future.

Manage RMDs Against Planned Charitable Contributions

If you are facing required minimum distributions from your IRA (all of which would be considered taxable income) and you want to make charitable gifts, consider using some or all of your RMD to make a Qualified Charitable Distribution (QCD). 

This strategy gives you the maximum tax reduction benefit for your planned charitable contribution. It’s fairly simple; all you have to do is contribute to your favored charity directly from your IRA, instead of taking the distribution yourself and writing your own check to the charity. Let it go directly from the IRA to the charity.

Implement A Roth Conversion Strategy

If you have a sizeable IRA, there is a strong chance that your RMDs (required minimum distributions) will push you into a higher tax bracket. Given the likelihood that tax rates will be higher at some point in the future – even if decades from now – the fact still remains that your tax rate today is probably lower than what it will be when RMDs kick in. 

The strategy is to consistently convert a portion of your IRA into a Roth each year. If done correctly – being mindful of your marginal tax rates each year – you pay fewer taxes across your entire retirement years, and you can accumulate a larger total investment portfolio within 10 to 12 years of beginning this strategy. After that breakeven point, your total investment portfolio should continue to grow each year because of this strategy.

Start A Side Hustle

Generally speaking, the U.S. tax code is skewed to favor self-employed people. It’s not fair, but it is the reality and has been for decades. To our knowledge, no proposals on the table would change this. 

Having another gig (now while you’re still employed or during retirement) allows you to take advantage of write-offs not available to people restricted to W-2 income. Whether you start consulting, run an eBay business, or just take odd jobs for pay as a 1099 contractor, you have a remarkable opportunity to reduce taxes during these earning years and position money for tax-free income in the future.