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TaxBuzz Top 5 - What Trump's Return Could Mean for Taxes, IRS Updates Capital Gains Thresholds & More

by
Rebekah Barton
on
11/8/2024
TaxBuzz Top 5 - What Trump's Return Could Mean for Taxes, IRS Updates Capital Gains Thresholds & More

Each Friday, TaxBuzz brings you the top five tax and accounting headlines you need to know from the workweek. We know life can get busy and you don't always have time to scroll through your news feed to stay informed.

We weed through all of the week's stories to showcase the most important updates in the tax and accounting world.

1. Trump’s Economic Revival Plans: Sweeping Proposals Face Challenges Amid Rising Cost of Living

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Credit: Chip Somodevilla/Getty Images

Donald Trump’s reelection has put economic revival at the forefront of his agenda as he enters his second term. Though the economy shows some strengths — slowing inflation and wages catching up to higher costs — Americans remain frustrated by the cost of living, which became a decisive factor in Trump’s victory. NBC notes that housing affordability has become a significant issue, with rents climbing 24% over the past four years and mortgage rates over 6% making homeownership harder to achieve. Groceries have similarly strained household budgets, up 22%, with food banks reporting record demand.

Throughout his latest Presidential campaign, Trump has pledged sweeping economic reforms to address these issues, many of which will require legislative support. He has proposed mass deportations, new tariffs on imports, increased domestic oil production, lowered corporate taxes, and eliminating taxes on Social Security income and tips. Among his more controversial plans are his proposed tariffs — a 10% tariff on all imports and a 60% tariff on Chinese products. Though Trump sees tariffs as essential for rebuilding American manufacturing, experts warn that they could push prices higher and lead to job losses.

With Republicans controlling the Senate, his administration will be closely watched as it attempts to balance these economic promises with viable outcomes.

2. IRS Announces 2025 Capital Gains Tax Brackets, Offering Taxpayers a Slight Advantage

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Credit: Natalia Bratslavsky/Getty Images

The IRS has adjusted the 2025 capital gains tax brackets to reflect inflation, providing taxpayers with more flexibility for investment income. Kiplinger reports that while long-term capital gains rates stay at 0%, 15%, and 20%, the income thresholds have shifted slightly higher.

Here’s how the new brackets break down:

0% Rate:

  • Single filers: Up to $48,350
  • Married filing jointly: Up to $96,700
  • Head of household: Up to $64,750

15% Rate:

  • Single filers: $48,351 to $533,400
  • Married filing jointly: $96,701 to $600,050
  • Head of household: $64,751 to $566,700

20% Rate:

  • Single filers: Over $533,400
  • Married filing jointly: Over $600,050
  • Head of household: Over $566,700

These thresholds show an approximate 2.8% increase over the 2024 brackets. This may seem minor, but it offers significant tax advantages. For example, married couples filing jointly can now realize an additional $2,650 of capital gains at the 0% rate, allowing for up to $96,700 in gains before crossing into the 15% bracket.

Similarly, those in the top bracket can benefit from a $16,300 income bump before hitting the 20% rate, meaning more gains can be taxed at the lower 15% rate. This incremental increase could help savvy investors better manage capital gains taxes for 2025.

3. Vanguard Agrees to $40 Million Settlement Over Unexpected Tax Bills for Investors

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Credit: Blackwater Images/Getty Images

Vanguard Group, the U.S.’s largest mutual fund manager, has agreed to a $40 million settlement following a lawsuit alleging the firm left ordinary investors with unanticipated tax liabilities from its target-date retirement funds. Filed in Philadelphia federal court, the settlement awaits judge approval, though Vanguard denies any wrongdoing.

Per Reuters, the lawsuit arose after Vanguard lowered the minimum investment for its institutional funds from $100 million to $5 million in December 2020, which sparked a shift of investors to these lower-cost options. The resulting "stampede" caused a significant sell-off in higher-cost retail funds as assets were liquidated to cover redemptions. Investors remaining in the retail funds were then hit with substantial capital gains. For example, Vanguard’s Target Retirement 2040 Fund generated capital gains representing 15.1% of its net asset value in 2021, compared to only 0.4% in 2020.

While Vanguard maintains it strives to support investors and retirement savers, this is not the first time a situation like this has arisen. In 2022, Vanguard agreed to a $6.25 million settlement with Massachusetts authorities over comparable allegations. In this latest settlement, investors’ attorneys may seek fees of up to $13.33 million and expenses, leaving $25.4 million for affected investors. The legal team considers the $40 million outcome a strong resolution relative to a maximum estimated $259.5 million in potential damages.

4. Washington Voters Reject Capital Gains Tax Repeal, Preserving Funding for Education and Child Care

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Credit: eyecrave productions/Getty Images

Washington voters decisively rejected Initiative 2109 on Tuesday, which would have repealed the state’s 7% capital gains tax on sales or exchanges of long-term assets like stocks, bonds, and business interests. The initiative was defeated with 63.2% of voters opposed. Implemented in 2021 and upheld by the state Supreme Court, the tax applies only to gains exceeding $262,000 (adjusted for inflation) and excludes real estate transactions.

Supporters of the capital gains tax argued that repealing it would cut essential funding for state programs, particularly in education and child care. Currently, up to $500 million in annual tax revenue is earmarked for these programs, with any excess directed toward school construction and renovations. While the Office of Financial Management estimates that future collections may not exceed $500 million per year, the tax brought in approximately $786 million in 2023 and an additional $433 million as of May 2024. Repeal would likely reduce state revenue by around $2.2 billion over the next five fiscal years.

Let’s Go Washington, led by hedge fund manager Brian Heywood, sponsored Initiative 2109, framing the capital gains tax as a hidden income tax and arguing that it might drive wealthy residents out of the state. However, the tax has also been credited by the Institute on Taxation and Economic Policy with reducing regressiveness in Washington’s tax system, which has historically placed a heavier burden on low-income residents.

5. Louisiana Lawmakers Begin Debate on Gov. Landry's Proposed Income Tax Overhaul

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Credit: Bruce Bordelon/Getty Images

On Thursday, November 7, Louisiana lawmakers moved forward with Governor Jeff Landry's ambitious tax overhaul, a plan aiming to reduce the state’s income tax to a flat 3% across all income levels. The proposal, which advanced through the House Ways and Means Committee, now heads to the full House for further debate.

Gov. Landry argues that Louisiana’s current tax structure is ineffective, describing the proposed tax cut as a step toward revitalizing the state’s economy. “Cutting our personal income tax by 30%, from 4.25% to a flat 3%, will trumpet a new day in Louisiana,” he stated.

While the reduction promises more take-home pay for many residents, it would create an estimated $500 million deficit in the state’s general fund. To address this, Landry’s plan proposes widening the sales tax to include services not previously taxed, such as ridesharing, car washes, and streaming services.

To implement the plan fully, voters would need to approve several constitutional amendments, reports local news network KADN. This special session is set to conclude by November 25, giving legislators just over two weeks to make decisions that could reshape Louisiana’s tax policies in a major way.

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Feature Image Credit: Chip Somodevilla/Getty Images

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Rebekah Barton

Rebekah Barton

Rebekah's search engine optimization career began completely by accident as a college student. Over the course of her career so far, she has "grown up" with the SEO industry, from writing content while juggling classes to managing her own teams of writers and overseeing SEO strategy in subsequent roles. She is excited to bring her passion for high-quality content to CountingWorks, Inc.

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