Overview of Expiring TCJA Provisions

The TCJA introduced various tax cuts and simplifications that have benefited millions of Americans. However, many of these provisions are set to expire on December 31, 2025, which could lead to substantial tax increases for individuals and families. Key provisions at stake include:

  1. Marginal Tax Rates: The TCJA lowered income tax rates across several brackets, with the top rate dropping from 39.6% to 37%. If these provisions expire, rates will revert to pre-TCJA levels, significantly increasing the tax burden for higher earners.
  2. Standard Deduction: The standard deduction was nearly doubled under the TCJA—$29,200 for married couples filing jointly and $14,600 for single filers in 2024. Post-expiration, these amounts will decrease significantly, potentially leading many taxpayers to itemize deductions again.
  3. Child Tax Credit: The enhanced child tax credit is also set to revert to lower amounts, reducing financial support for families.
  4. Personal Exemptions: The TCJA suspended personal exemptions, which will return upon expiration, affecting taxable income calculations.
  5. Estate Tax: The $14 Million lifetime exclusion under TCJA will cut in half back to $7 million.  Taxpayers with significant U.S. assets should consider updating their estate plan in order to avoid heavy estate tax.
  6. Qualified Business Income Deduction: The Sec. 199A 20% qualified business (QBI) deduction will be phased out for partnerships, sole proprietorships, and other noncorporate businesses. Taxpayers who are business owners will potentially have an increase in their tax liability.
  7. State and Local Income Tax Itemized Deductions: The $10,000 cap on the state and local income tax under itemized deduction will be removed. It will revert to allowing taxpayers full deduction for these taxes.

Importance of Tax Planning

With these changes looming, proactive tax planning becomes essential for individuals and families to navigate the upcoming tax landscape effectively. Here are several strategies that can help:

  1. Review Income Projections

Taxpayers should assess their expected income for 2025 and beyond. Understanding how income levels may change can inform decisions about withholding and estimated tax payments.

  1. Adjust Withholding and Contributions

Given the anticipated changes in tax brackets and deductions, adjusting withholding on pay checks may be necessary to avoid underpayment penalties. Additionally, increasing contributions to retirement accounts like IRAs or 401(k)s can reduce taxable income while preparing for retirement.

  1. Consider Itemizing Deductions

As the standard deduction decreases post-TCJA, taxpayers should evaluate whether itemizing deductions would be more beneficial. This includes keeping track of qualified expenses that could exceed the new standard deduction thresholds.

  1. Plan for Future Tax Implications

Taxpayers should consider how their financial decisions today may impact their future tax situation. This includes evaluating investments, business income, estate valuation, and other sources of revenue that could be affected by changing tax laws.

  1. Stay Informed on Legislative Changes

Tax laws can change rapidly based on political dynamics. Staying informed about potential extensions or modifications to the TCJA provisions is crucial for effective planning. Engaging with a tax professional can provide insights into legislative updates and personalized strategies.

The expiration of TCJA provisions at the end of 2025 presents both challenges and opportunities for taxpayers. By engaging in thoughtful tax planning now, individuals can better position themselves to handle potential increases in their tax liabilities while maximizing available deductions and credits.

Disclaimer: This information has been prepared for informational purposes only, and is not

intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors or consult us regarding your own personal tax situation as this article was intended to be general in nature.