The turbulence surrounding key elections in 2024 isn’t limited to the campaign trail. With the expiration of 2017’s Tax Cuts and Jobs Act (TCJA) set for December 31, 2025, taxpayers of all types and sizes – from individuals to corporations – are likely to feel the reverberations of significant and widespread tax law change. In this post, we’ll break down the basics of the TCJA and what’s at stake based on what we know today.
Quick Refresher: A Look at the TCJA
Enacted in 2017 by former President Trump and a Republican majority in both houses of Congress, TCJA drastically transformed the taxation framework in the U.S. This significant legislation introduced sweeping tax reductions for both businesses and individual taxpayers. However, a majority of these changes are scheduled to sunset at the end of 2025, which means that without further action from Congress to extend or modify the law, the tax policies currently in place will expire.
Looking Ahead to 2026: What’s at Stake?
With big unknowns surrounding the outcome of the November election, U.S. tax policy hangs in the balance. Without action from Congress, effective January 1, 2026, many significant changes to the U.S. tax code would occur overnight, including:
- Potential increase in individual tax brackets. Under TCJA, new income tax brackets were created and recalibrated with most taxpayers seeing a three to nine percent decrease.
- The higher standard deduction will go back to pre-tax reform levels, while personal exemptions will be restored.
- SALT (State and Local Tax) cap will sunset, eliminating the $10,000 state and local tax limitation for those that itemize.
- The Alternative Minimum Tax (AMT) will revert back to its original calculation, pulling back in many more taxpayers and increasing their tax burden.
- The current estate tax exemption of $13.61 million per individual ($27.2 million for a married couple) would revert back to around $7 million per individual (around $14 million for a married couple) after inflation adjustments. Estates in excess of that exemption would be subject to a 40% estate tax.
- The “permanently” reduced C Corporation tax rate of a flat 21% may be subject to revision as part of Congressional negotiation.
- The 199A Qualified Business Income deduction would be eliminated, ending a popular deduction for pass-through entities and sole proprietors that allows them to avoid taxation on up to 20% of their qualified income.
How Can Taxpayers Prepare for Tax Law Changes?
Amid this dynamic and fast-changing political and fiscal environment, definitive answers will be elusive in the coming weeks and months. However, depending on your unique circumstances, there are opportunities to proactively plan to lessen your potential tax burden.
- Don’t wait on estate planning — start now. Designing and implementing a well thought out plan to address potential changes can take considerable time. Certain common strategies also require time to implement. Further, heading into 2025, attorneys and other advisors may reach capacity from clients looking to take advantage of current tax laws. Proactive and intentional planning in coordination with your financial and other advisors will serve as the foundation for successful wealth transfer and protect against future adverse tax law changes.
- Talk with your RKL advisor about your unique circumstances. Depending on your current situation, there may be opportunities to adjust the timing of either income recognition or deductibility of certain expenses. Individual taxpayers may look at investment portfolio strategies including converting taxable IRAs or 401(k) money into a Roth IRA or tax loss harvesting and portfolio rebalancing.
As we navigate these uncertain times, staying informed and proactive in tax, financial and estate planning is crucial. The interplay between the fast-approaching political changes and tax policy requires vigilance and adaptability to ensure that both individuals and businesses can make well-informed decisions to optimize their financial outcomes.
To find out how you can plan for the future, get in touch with the team at RKL Tax Services Group. Contact me today using the contact info available in my bio or fill out the form below to connect with one of our advisors.
