The Trump Tax Cuts, officially known as the Tax Cuts and Jobs Act (TCJA) of 2017, introduced significant changes to the tax code, primarily benefiting businesses and individuals through lower rates and increased deductions. However, many of the provisions for individuals are set to expire in the near future. The key date to keep in mind is December 31, 2025. After that, unless Congress acts to extend or revise them, the tax code will revert to pre-TCJA levels.
What Are the Key Provisions Expiring in 2025?
- Individual Income Tax Rates: The TCJA lowered the individual tax rates across the board. If these cuts expire in 2025, the rates will revert back to their pre-2018 levels:
- The current tax brackets range from 10% to 37%.
- Post-2025, tax brackets will increase, ranging from 10% to 39.6% (the top rate will increase).
- Standard Deduction:
- The TCJA nearly doubled the standard deduction, making it more attractive for many taxpayers to skip itemizing deductions.
- Current (2023): $13,850 for single filers and $27,700 for joint filers.
- After 2025, the standard deduction is expected to revert to lower, pre-TCJA amounts.
- Child Tax Credit:
- The TCJA expanded the Child Tax Credit from $1,000 to $2,000 per child.
- After 2025, the credit will drop back to $1,000 per child unless new legislation is passed.
- State and Local Tax (SALT) Deduction:
- The TCJA capped the SALT deduction at $10,000.
- If this provision expires, the SALT deduction cap will be lifted, and taxpayers may again deduct the full amount of state and local taxes paid.
- Estate Tax:
- The TCJA doubled the estate tax exemption to $12.92 million per individual in 2023.
- After 2025, the exemption will revert to around $5.5 million per individual (adjusted for inflation).
- Other Expiring Provisions:
- The expanded medical expense deduction threshold of 7.5% of AGI (adjusted gross income) will revert to 10%.
- The Qualified Business Income (QBI) Deduction of 20% for certain pass-through businesses will also expire unless extended.
What Will the Tax Code Look Like After 2025?
If the provisions of the TCJA expire without further legislative action, here’s how the tax code will revert:
- Higher Tax Brackets: Individual tax rates will go back to pre-2018 levels, increasing the tax burden on most taxpayers.
- Smaller Standard Deduction: Taxpayers will have smaller standard deductions, pushing more people to itemize their deductions again.
- Lower Child Tax Credit: Families will receive a smaller child tax credit.
- Unlimited SALT Deductions: The cap on state and local tax deductions will be removed, benefiting taxpayers in high-tax states.
- Lower Estate Tax Exemption: The estate tax exemption will decrease significantly, impacting wealthier individuals and families.
What Could Happen?
While the December 31, 2025 expiration date looms, it’s possible that Congress could extend some or all of these provisions, make changes, or pass entirely new tax legislation. Given the political landscape, the fate of these tax cuts will likely depend on the outcome of the 2024 elections and the priorities of Congress at that time.
The expiration of the Trump tax cuts could mean a significant change in the tax landscape for both individuals and businesses, making it essential for taxpayers to stay informed and plan accordingly.
Conclusion: If no action is taken, the tax code will revert to pre-2018 levels by the end of 2025. The impact of this expiration will be widespread, affecting tax brackets, deductions, and credits across the board.
For now, it’s important to keep an eye on legislative developments and, if necessary, start planning for potential changes in your tax strategy. Consult with a tax professional to prepare for the possible expiration of these cuts!
Written with ChatGPT