The Tax Cuts and Jobs Act (TCJA) of 2017 brought changes to the tax landscape for both individuals and businesses. While many of these provisions have been in effect for several years, most individual tax provisions are set to expire after 2025, unless Congress acts to extend them. Here’s what that means for taxpayers and some other key updates you should be aware of.
Changes in Individual Tax Provisions After 2025
As we approach the end date for these temporary provisions, it’s essential to understand how they may impact you. Unless Congress makes changes, many tax rules will revert to pre-2017 standards on January 1, 2026.
Tax Rates
Under the TCJA, current tax rates range from 10% to 37%. However, if the law expires without an extension, these rates will increase across the board. The brackets will revert to the pre-2017 rates, which were 10%, 15%, 25%, 28%, 33%, 35%, and 39.6%. This shift will affect taxpayers across various income levels, potentially increasing their tax liabilities.
Standard Deduction
The TCJA nearly doubled the standard deduction, leading many taxpayers to take this deduction instead of itemizing. However, after 2025, the standard deduction will decrease, and more taxpayers may find it beneficial to return to itemizing deductions. That said, higher-income individuals could see the return of limits on itemized deductions, increasing their overall tax burden.
Estate Tax
In 2024, the estate and gift tax exemption sits at a historically high $13.61 million. By contrast, in 2017, the exemption was only $5.49 million. When the TCJA provisions expire, the exemption is expected to return to pre-2017 levels, which could lead to more estates being subject to estate tax.
SALT Deduction
Before the TCJA, taxpayers could deduct state and local taxes (SALT) without limit. The 2017 tax law capped the SALT deduction at $10,000, which disproportionately affected taxpayers in states with high property or income taxes. If the provisions expire, the $10,000 cap will be lifted, benefiting those who pay significant state or local taxes.
Miscellaneous Deductions
One of the more under-the-radar changes in the TCJA was the elimination of miscellaneous deductions. These included unreimbursed employee expenses (like travel or meals), brokerage and IRA fees, and tax preparation fees. With the expiration of the TCJA, these deductions may return, offering some relief to individuals who incur these types of expenses.
Corporate Transparency Act: New Requirements for Businesses
In addition to upcoming changes for individuals, businesses should be aware of new reporting requirements under the Corporate Transparency Act (CTA). This act, which became effective in 2024, requires most businesses to report their beneficial ownership information (BOI) to the U.S. government.
Who Needs to Report?
Businesses created or registered before January 1, 2024, have until January 1, 2025, to file their initial BOI report.
For businesses formed or registered after January 1, 2024, they must file their report within 90 days of receiving notice of creation or registration.
If your business is subject to this requirement and you need assistance submitting the necessary reports, Obregon & Associates can help. Simply reach out to us, and we can provide an engagement letter to begin the process of ensuring your business remains compliant.
Prepare for Future Changes
The expiration of the TCJA’s temporary provisions could significantly impact your financial planning. Whether you’re an individual taxpayer navigating rate changes or a business owner adjusting to new reporting rules, it’s crucial to stay informed. At Obregon & Associates, we’re here to guide you through these transitions and ensure you remain compliant with all tax laws and regulations.
Contact us today to discuss how these changes could affect you and your financial strategy.
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