Tax Changes & Updates

The potential impact of TCJA sunsetting after 2025: what you need to know

The TCJA, signed into law in 2017, significantly changed the U.S. tax code. But did you know that many of its provisions are set to expire after 2025?

This could have a significant impact on taxpayers and the economy as a whole.

Post - 2025 Calculation Assumptions

The 2017 Tax Cuts and Jobs Act is meant to sunset in the year 2026.

We have coded our 2026 calculations to include that sunset under the "Current Law" calculation method. We have also added an option called "No 2026 Sunset" to calculate the 2026+ taxes assuming no sunset happens.

This latter method makes no changes to what is used in 2022 onward, apart from the normal inflation adjustments to various brackets.

The Sunset Version Includes the Following Changes:

  • Ordinary income brackets revert back to 2017 levels, adjusted for inflation to 2026.

  • Elimination of the $10,000 SALT deduction cap.

  • Misc. deductions subject to the 2% floor.

  • Max cash charity deduction drops from 60% to 50% AGI.

  • Itemized deduction phase out, aka the Pease Limitation.

  • Standard deduction reverts back to 2017 levels, adjusted for inflation to 2026.

  • Personal exemptions and their phase outs.

  • QBI deduction discontinued.

  • Tweaks to the child tax credit.

  • AMT exemptions revert back to 2017 levels, adjusted for inflation to 2026.

  • Tweaked logic for when to take itemized vs standard deduction due to AMT behavior. (Sometimes it is beneficial to itemize even if smaller.)

What Individual Taxpayers Need to Know

The TCJA lowered tax rates, increased the standard deduction, and limited certain deductions for individual taxpayers. If the TCJA provisions expire as scheduled, the individual tax rates will revert back to pre-2018 levels, which were generally higher.

Additionally, the standard deduction will be reduced, and many of the deductions that were limited or eliminated under the TCJA will be reinstated. This could result in higher taxes for many individuals and families.

What Businesses Need to Know

For businesses, the TCJA included a reduced corporate tax rate and changes to the way pass-through income is taxed. If the TCJA provisions expire, the reduced corporate tax rate will increase, and the changes to pass-through income taxation will revert to the pre-TCJA rules.

This could make it more expensive for businesses to operate and could slow economic growth.

What You Can Do

It's important to note that there is still a lot of uncertainty around what will happen when the TCJA provisions sunset. Congress could choose to extend some or all of the provisions, or they could let them expire as scheduled. It's also possible that new legislation could be passed to replace the TCJA.

Regardless of what happens, taxpayers in North Carolina need to stay informed and be prepared for potential changes to the tax code.

Working with a qualified tax professional can help ensure you're making informed decisions and taking advantage of all available tax benefits. Keep an eye on future updates to the tax code to stay up-to-date on any changes that may affect you or your business.

Andrew Lippert, CFA®, CFP®, EA - Founder, CEO, & Lead Financial Nerd 2401 Lafayette Ave Greensboro NC 27408 United States of America

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