The Tax Cuts and Jobs Act (TCJA) of 2017 introduced sweeping changes to the U.S. tax code, affecting both individuals and businesses. However, many of the provisions for individuals were temporary and are set to expire after 2025. Without an extension by Congress, these changes will revert to the 2017 tax rules on January 1, 2026. As this date approaches, it’s important to understand how these changes could impact your financial planning and tax strategies.
What Happens to Individual Taxes After 2025?
Unless Congress acts to extend the provisions, several key tax rules will change, affecting income tax rates, deductions, and more.
Changes to Tax Rates
Under the TCJA, the current individual income tax rates are 10%, 12%, 22%, 32%, 35%, and 37%. After 2025, these rates will revert to the pre-2017 levels of 10%, 15%, 25%, 28%, 33%, 35%, and 39.6%. This increase could affect taxpayers across different income brackets, potentially leading to higher tax liabilities.
Standard Deduction
The TCJA nearly doubled the standard deduction, making it less common for taxpayers to itemize deductions. If the TCJA provisions expire, the standard deduction will decrease, which may result in more taxpayers choosing to itemize. However, high-income taxpayers could see the return of limits on itemized deductions, reducing their tax benefits.
Estate Tax
The estate and gift tax exemption currently stands at $13.61 million for 2024. When the TCJA provisions expire, the exemption is expected to drop back to the 2017 level of $5.49 million. This means more estates could become subject to estate tax, making estate planning an even more critical aspect of financial management for high-net-worth individuals.
SALT Deduction
From 1913 to 2017, taxpayers were able to deduct their local property and state taxes from their federal taxes, helping them avoid being taxed twice on the same income. The TCJA capped the State and Local Tax (SALT) deduction at $10,000. If the cap expires in 2026, taxpayers in high-tax states could benefit from reverting to pre-2017 rules, as there will no longer be a limit on the SALT deduction.
Miscellaneous Deductions
The TCJA eliminated certain itemized deductions through 2025, including unreimbursed employee expenses, brokerage fees, hobby expenses, and tax preparation fees. When the TCJA expires, these miscellaneous deductions may return, offering taxpayers more opportunities to reduce their taxable income.
Corporate Transparency Act: New Requirements for Businesses
In addition to these changes for individuals, businesses should also be aware of the new reporting requirements under the Corporate Transparency Act (CTA). The CTA requires companies to report their beneficial ownership information (BOI) to the federal government. This information helps regulators identify the individuals behind a business, promoting transparency and preventing illegal activities.
Who Needs to Report?
Existing Companies: Businesses created or registered before January 1, 2024, must submit their BOI report by January 1, 2025.
New Companies: Businesses created or registered after January 1, 2024, must submit their BOI report within 90 days of receiving notice of creation or registration.
If your business needs assistance with submitting its Beneficial Owner Information report, Obregon & Associates can help. We’ll guide you through the process and ensure your company remains compliant with the new regulations.
Plan Ahead for Upcoming Tax Changes
The expiration of the TCJA provisions will significantly impact many taxpayers and businesses. Whether you're concerned about higher income tax rates, changes to deductions, or new reporting requirements, it’s important to plan ahead. At Obregon & Associates, we’re here to help you navigate these changes and adjust your tax strategy to ensure compliance and minimize your tax burden.
Contact us today to discuss how these upcoming changes might affect you and your financial future.
Comments