Tax Cuts & Jobs Act Expires in 2025

The Tax Cuts and Jobs Act (TCJA), enacted in December 2017, introduced significant tax changes which are set to expire at the end of the year in 2025.  The expiration of the TCJA’s individual tax benefits — including reduced tax rates and higher standard deductions — will likely lead to increased tax liabilities for many individuals.  Consequently, personal financial planning will need to adapt, as taxpayers face higher tax bills and a more complex tax landscape in the future.

For individuals, the sunsetting of the TCJA means a potential return to pre-2018 income tax rates and a decrease in the standard deduction.  Currently, the TCJA has provided reduced tax rates across income brackets and nearly doubled the standard deduction, offering significant savings.  However, once these provisions expire, individuals could see their tax rates rise and their standard deduction decrease, leading to potentially higher taxable income and increased tax bills.  This shift necessitates proactive tax planning to mitigate the financial impact of these changes, such as adjusting withholding amounts and exploring alternative tax-saving strategies.

Businesses are also affected by the sunsetting of this legislation.  The corporate tax rate reduction from 35% to 21% was made permanent.  However, other key provisions, such as temporary bonus depreciation and limitations on interest deductions, are scheduled to expire December 31, 2025.  The potential loss of these tax benefits could impact business investment strategies and financial planning.  Companies may need to reassess their capital investment decisions and debt structures, potentially altering their approach to financing and asset acquisition in anticipation of these changes.

The TCJA significantly increased the estate and gift tax exemption limits, allowing individuals to transfer more wealth without incurring estate taxes. However, these increased exemption amounts are also set to expire, returning the limits to pre-TCJA levels.  This sunset provision means that high-net-worth individuals may face higher estate taxes in the future, prompting a need for strategic estate planning.

Overall, the sunsetting of the TCJA’s provisions introduces considerable uncertainty for individual taxpayers, businesses, and estate planners.  Planning ahead is crucial, as the potential changes could significantly impact financial decisions and tax liabilities.  Staying informed about legislative developments, and considering potential strategies to address these future changes, will be important for effective financial management and tax optimization as we head into 2025, and in the years to come as we work through the expiration of the TCJA.