The Tax Cuts and Jobs Act (TCJA) of 2017 introduced sweeping changes to the tax code, benefiting many individuals and businesses. However, several key provisions were not made permanent and are set to expire at the end of 2025. If Congress doesn’t act, these expirations could significantly impact your tax bill starting in 2026. Here’s what you need to know about the upcoming changes and how to prepare.
1. Individual Income Tax Rates and Brackets
The TCJA reduced income tax rates across all brackets, giving most taxpayers a smaller bill each year. Without legislative action, these rates will revert to their pre-2018 levels, leading to higher taxes for nearly everyone. For example, the current 22% bracket could jump back to 25%, while the 12% bracket may increase to 15%.
What to Do: Review your tax bracket and consider how the potential changes might impact your finances. Tax-efficient investments or contributions to retirement accounts could help mitigate higher taxes.
2. Standard Deduction and Personal Exemptions
One of the most popular features of the TCJA was nearly doubling the standard deduction. For 2023, it’s $13,850 for single filers and $27,700 for married couples filing jointly. At the same time, the act eliminated personal exemptions.
After 2025, the standard deduction is set to shrink, and personal exemptions may return, changing how taxable income is calculated.
What to Do: Be prepared to revisit your itemized vs. standard deduction strategy and check how the changes affect your taxable income.
3. Child Tax Credit
The TCJA boosted the child tax credit to $2,000 per qualifying child, with higher income thresholds for phase-out. However, after 2025, the credit will revert to $1,000 per child, with more stringent eligibility criteria.
What to Do: Families should consider the potential reduction in this credit when planning their budgets and tax strategies for 2026.
4. State and Local Tax (SALT) Deduction Cap
The SALT deduction cap was one of the most controversial elements of the TCJA. It limited deductions for state and local taxes to $10,000. This cap is set to expire after 2025, potentially restoring the full deduction.
What to Do: If you’re in a high-tax state, the expiration of this cap could reduce your taxable income. Keep an eye on any legislative changes, as this deduction has been a point of political contention.
5. Alternative Minimum Tax (AMT) Exemption
The TCJA raised the AMT exemption amounts and phase-out thresholds, sparing many taxpayers from this additional tax. However, these provisions are set to expire in 2025, potentially drawing more individuals back into the AMT.
What to Do: High-income taxpayers should review their tax situation with a professional to determine if AMT strategies are necessary post-2025.
6. Estate and Gift Tax Exemptions
The TCJA doubled the estate and gift tax exemptions, allowing estates up to $12.92 million (2023) to be passed on tax-free. When these provisions expire, the exemption amount will drop significantly, likely back to pre-TCJA levels.
What to Do: If you’re planning to transfer wealth, now may be the time to act. Consult with an estate planning attorney or tax professional to explore strategies for minimizing future estate tax liabilities.
7. Pass-Through Business Income Deduction
Small business owners and self-employed individuals benefited from the 20% deduction on qualified business income introduced by the TCJA. This deduction is set to expire after 2025.
What to Do: Business owners should evaluate how this expiration could affect their bottom line and consider strategies to optimize tax savings in the coming years.
8. Miscellaneous Itemized Deductions
The TCJA temporarily suspended miscellaneous itemized deductions subject to the 2% floor. These deductions will return in 2026, allowing taxpayers to deduct certain expenses exceeding 2% of their adjusted gross income.
What to Do: If you regularly incur deductible expenses such as union dues, tax preparation fees, or unreimbursed employee expenses, be ready to track and claim these deductions again.
9. Medical Expense Deduction Threshold
The TCJA lowered the threshold for deducting unreimbursed medical expenses to 7.5% of adjusted gross income. After 2025, this threshold will increase to 10%, making it harder for many taxpayers to qualify.
What to Do: Consider timing significant medical procedures or expenses to take advantage of the lower threshold while it’s still in place.
10. Limitation on Itemized Deductions (Pease Limitation)
High-income taxpayers benefited from the suspension of the Pease limitation, which reduced the value of itemized deductions. This limitation is scheduled to return in 2026, potentially increasing taxable income for affected individuals.
What to Do: If you’re in a higher tax bracket, consult with your advisor to understand how this change might affect you and explore strategies to minimize your tax liability.
Final Thoughts: Be Proactive
The expiration of these TCJA provisions could significantly impact your finances, but there’s still time to prepare. Tax planning now can help you adapt to the changes and potentially reduce your tax burden.
Have questions or need guidance? We’re here to help! Contact us to discuss your unique situation and create a strategy tailored to your needs.
