Taxes can be overwhelming, and recent updates on President Trump’s tax plans have left many people wondering how these changes will affect them. How did he pay so little in taxes? What do his policies mean for business owners, retirees, and everyday workers? Let’s break it down in a way that’s easy to understand.
How Did Trump Pay So Little in Taxes?
In 2020, The New York Times reported that Trump paid just $750 in federal income taxes in 2016 and 2017. Even more surprising—he paid nothing for 11 out of 18 years. How? The answer lies in tax loopholes, deductions, and business strategies commonly used by wealthy individuals.
Tax Strategies Trump Used
- Writing Off Business Losses – Trump reported massive business losses, which reduced his taxable income to almost nothing. Many high-net-worth business owners use this tactic to lower their tax bills.
- Real Estate Tax Benefits – U.S. tax laws favor real estate investors. Property owners can claim depreciation on buildings, reducing taxable income even when property values rise.
- Business Write-Offs – Trump deducted consulting fees, private jet expenses, and even personal grooming costs as business expenses, lowering his taxable income.
- Pass-Through Entities – Trump structured his businesses so profits and losses flowed through to his personal tax return, allowing him to avoid corporate tax rates.
Trump’s New Tax Plan—What’s Changing?
Now that Trump is back in office, he has proposed new tax reforms aimed at lowering taxes for individuals and businesses. Here’s a look at his key proposals:
- Extending the 2017 Tax Cuts – Trump wants to make permanent the tax cuts from the Tax Cuts and Jobs Act (TCJA), which lowered tax rates for individuals and corporations.
- Lowering Business Taxes – He proposes reducing the corporate tax rate from 21% to 20% and as low as 15% for U.S. manufacturers.
- Eliminating Taxes on Certain Income – Trump wants to exempt tips, overtime pay, and Social Security benefits from federal income tax.
- Restoring SALT Deductions – He suggests bringing back full deductions for state and local taxes (SALT), which could benefit taxpayers in high-tax states.
- Raising Import Tariffs – To fund tax cuts, Trump plans to impose a 20% tariff on all imports and a 60% tariff on Chinese imports. While this could raise revenue, it may also increase prices for consumers.
Who Benefits the Most?
- High-Income Earners & Businesses – Lower corporate tax rates and real estate tax benefits favor wealthier individuals.
- Workers with Tips or Overtime Pay – If Trump’s plan is approved, employees in service industries may get tax relief.
- Retirees on Social Security – Seniors could keep more of their Social Security benefits without paying federal taxes.
- Manufacturers & U.S.-Based Businesses – Lower tax rates and incentives for domestic production may encourage growth in American industries.
Who Might Pay More?
- Middle & Low-Income Families – While some tax breaks benefit workers, the biggest advantages go to corporations and high earners.
- Consumers & Small Businesses – Higher tariffs could increase prices on imported goods, impacting both shoppers and business owners.
- Future Generations – Expanding tax cuts without new revenue sources may add to the national debt, potentially leading to tax hikes in the future.
What This Means for Small Businesses
Small businesses are a major focus of Trump’s tax plan. Many of the proposed changes could provide tax relief, but some may create new challenges.
- Lower Tax Rates for LLCs and S-Corps – Small businesses structured as pass-through entities could continue to benefit from lower tax rates.
- 100% Deduction for Equipment Purchases – Businesses may continue to write off new equipment costs immediately.
- Potential Higher Costs – Import tariffs could raise prices for businesses that rely on international suppliers.
- Payroll Tax Exemptions – Eliminating federal taxes on overtime pay could ease payroll burdens for small businesses.
Final Thoughts: How to Prepare
Trump’s tax plan highlights how U.S. tax laws favor business owners and real estate investors. While some of his proposals could benefit workers and retirees, others could lead to higher costs and a larger national deficit.
If you’re a small business owner or want to lower your tax bill, now is the time to plan ahead. Working with a tax professional can help you navigate tax laws, claim deductions, and maximize savings.
At Taxfully, we specialize in tax strategies for individuals and business owners. Book a free consultation today to see how you can save more on taxes and keep more of your hard-earned money!
