President-elect Donald Trump made promises during his electoral campaign to extend several provisions in the Tax Cuts & Jobs Act, a law passed in 2017 that significantly altered the tax code and provided financial benefits to nearly all taxpayers. However, many of these provisions are set to expire at the end of 2025, including individual tax brackets and the standard deduction. If Congress fails to pass legislation to extend these reforms, more than 60% of taxpayers could face a tax increase in 2026, according to the Tax Foundation.
While the expiration date may seem far off, passing a major tax bill before the TCJA provisions expire next year is a challenging task for Congress. In addition to extending tax breaks, Trump also proposed additional cuts, such as eliminating taxes on tips for tipped workers and eliminating taxes on Social Security income for senior citizens.
Duncan Campbell, tax leader at Baker Tilly’s private wealth practice, emphasized the importance of preparing for the potential expiration of TCJA provisions. Campbell advised clients to plan as if everything is sunsetting, as it is crucial to protect oneself financially and avoid being caught off guard in case Congress fails to pass an extension.
The potential federal income tax changes in 2025 could have significant implications for taxpayers. The expiration of the TCJA could mean a reversion to pre-TCJA tax brackets, a decrease in the standard deduction, and the return of personal exemptions. Additionally, the Child Tax Credit could revert to its previous level, impacting families with children.
One key provision that could change is the $10,000 SALT deduction cap, which limits the amount of state and local taxes that can be deducted on federal income taxes. Trump had promised to eliminate this cap, and his economic adviser suggested raising it to $20,000.
The likelihood of Congress extending Trump’s tax cuts is high, given the Republican majority in the House and Senate. However, concerns about the fiscal impact of these extensions have been raised, with estimates suggesting they could add trillions to the deficit. Trump campaign officials have proposed cuts in federal spending to address the deficit.
In preparation for potential tax changes in 2025, Campbell recommended that higher-income taxpayers plan ahead for the expiration of TCJA provisions. This includes considering changes to the estate and gift tax exemption, as well as the qualified business income deduction for small business owners. Planning ahead and setting aside extra cash for potential tax increases in 2026 is crucial for financial stability.
Overall, the potential expiration of TCJA provisions in 2025 could have significant implications for taxpayers, and it is essential to stay informed and plan accordingly to minimize financial impact.
