The Tax Cuts and Jobs Act (TCJA) of 2017 brought significant changes to the tax code for individuals, families, and businesses. However, many of its provisions are set to expire at the end of 2025, which could mean higher taxes and fewer deductions for millions of Americans. Here's a breakdown of the potential changes and how they could affect you.
1. Higher Personal Income Taxes
The TCJA reduced tax rates across all brackets. If it expires, tax brackets will revert to pre-2017 levels. For example, the current 22% tax bracket could return to 25%, and the top rate could rise back to 39.6% from the current 37%. The nearly doubled standard deduction—now $13,850 for individuals and $27,700 for married couples—will also shrink, reducing tax savings for most filers.
This change could mean hundreds to thousands of dollars more in taxes for middle-income families. If you're itemizing deductions, expect those limits to tighten as well.
What You Can Do: Start reviewing your financial situation with a tax advisor to determine how a higher tax rate might affect you. Consider adjusting withholding or saving more in tax-deferred retirement accounts to mitigate the impact.
2. Reduction in Child Tax Credit
The Child Tax Credit, currently at $2,000 per child, is scheduled to drop to $1,000 per child if the TCJA expires. This change could mean a significant loss of tax relief for families, especially those with multiple children.
Action Step: If you rely on the Child Tax Credit, consider adjusting your budget to accommodate this potential reduction. Planning ahead now can help avoid future financial strain.
3. Corporate and Small Business Tax Rate Increases
Under the TCJA, the corporate tax rate was slashed from 35% to 21%, encouraging growth and investment. If the TCJA expires, this rate could revert to 35%, putting pressure on profits. Additionally, small business owners who benefit from the 20% pass-through deduction may see that deduction disappear, leading to higher taxes on business income.
For businesses, this could mean less available cash for reinvestment, hiring, or growth.
What You Can Do: If you're a business owner, now is the time to consult a tax professional to assess the impact and consider restructuring your business or making capital investments before 2026.
4. Estate and Gift Tax Exemptions Will Decrease
Currently, the TCJA allows individuals to leave up to $12.92 million (2023 limit) tax-free to their heirs. Without an extension, this exemption will drop back to $5.49 million in 2026. This would subject many more estates to the 40% federal estate tax, which could significantly affect families with high-value assets like farms, businesses, or real estate.
Next Steps: If your estate exceeds the lower exemption threshold, now is the time to plan. Consider making gifts while the higher exemption is still in effect or consult an estate planning attorney to explore tax-efficient strategies.
5. Fewer Deductions for Pass-Through Entities
Small business owners who benefit from the 20% deduction for pass-through entities—such as S-corporations, LLCs, and sole proprietorships—will face higher taxes if this deduction is allowed to expire. This could increase the effective tax rate for many small business owners by as much as 5-7%.
What You Can Do: Evaluate your business structure and plan for a potential increase in taxes. Consider speaking with a tax professional to explore options like restructuring or implementing tax-efficient strategies before the law changes.
Political Uncertainty and Future Outlook
With the TCJA’s expiration looming, there is ongoing debate in Congress about whether to extend, revise, or let it expire. However, the political landscape is unpredictable, and decisions may not be made until we get closer to 2025. While some legislators argue for keeping the tax cuts to promote growth, others emphasize the need to reduce the national deficit, which may push for tax increases.
How RSK Tax and Consulting, LLC Can Help You Prepare
At RSK Tax and Consulting, LLC, we understand that navigating potential tax changes can be overwhelming. Our team of tax professionals is here to help you stay ahead of these shifts. Whether you’re an individual, a family, or a business owner, we offer customized strategies to ensure you’re prepared for whatever comes next.
Here’s how we can help:
- Tax Planning: We’ll work with you to minimize your tax liability and plan for any future changes.
- Business Advisory Services: Our consultants can help you identify the most tax-efficient structures and strategies for your business.
- Estate Planning: Ensure that your wealth is protected and your family’s future is secure with our tailored estate tax services.
Contact us today for a consultation and make sure you’re fully prepared as the expiration of the TCJA approaches.
