The Tax Cuts and Jobs Act (TCJA) of 2017 represented one of the most significant overhauls to the US tax code in recent decades, introducing a range of temporary changes intended to stimulate economic growth. Now, as we approach the 2025 expiration date of many TCJA provisions, investors, families, individuals, and business owners are bracing for a potential shift in their tax landscape. Understanding the implications of the TCJA sunset is crucial for tax planning and financial decision-making as the altered rules could materially impact budgets, investments and estate plans.

Overview of TCJA Provisions Set to Expire

A variety of tax changes introduced by the TCJA are scheduled to sunset at the end of 2025, including but not limited to:

• Individual tax rate reductions across several brackets.
• The roughly doubled standard deduction, which reduced incentives to itemize deductions.
• The cap on state and local tax (SALT) deductions.
• The expanded Child Tax Credit and Child and Dependent Care Credit.
• The estate and gift tax exemption amount, which was doubled.
• 20% deduction on qualified business income for pass-through entities (Section 199A).

Key Takeaways for Investors

Investors should prepare for potential decreased after-tax returns on their investments. The anticipated increase in individual tax rates could lead to higher capital gains tax liabilities, particularly for those in higher income brackets. It’s advisable for investors to review their portfolios and consider strategies such as tax-loss harvesting or the timing of asset sales to mitigate the tax impact.

Impact on Families and Individuals

Families and individuals may need to revisit their tax plans, especially if they have come to rely on inflated standard deductions or enhanced tax credits. The expiration of these benefits could result in a larger tax bill and reduced income. Early review of withholding and estimated taxes may help prevent underpayment penalties and ensure a more level tax load over the course of the year.

Business Owners Brace for Change

Business owners, especially those operating pass-through entities, may find the sunsetting of certain deductions to be a significant adjustment. The expiration of the 20% qualified business income deduction could result in sizable increases in taxable income. Companies should consider re-evaluating their business structures and accounting strategies to adapt to the revised tax code.

Preparing for the Sunsetting of TCJA Provisions

With the TCJA provisions set to sunset, it is essential for taxpayers to consult with tax professionals to prepare for the upcoming changes. Being proactive can afford various options – such as accelerating income, deferring deductions, or altering investment portfolios – to optimize tax positions ahead of the sunset. 

Let’s expand on two provisions of particular importance:

1. The state and local tax (SALT) deduction was capped at $10,000, which had a significant impact on taxpayers in high-tax states. After 2025, this limitation will expire, allowing greater benefit from deducting taxes paid during the calendar year, including real estate taxes, state or local income taxes, and personal property taxes¹.

• In 2017, the TCJA raised the amount of this exemption to $11.2 million from $5.6 million, indexed for inflation. Currently, the exemption amount for 2024 is $13.6 million and upon expiration it is scheduled to revert to pre-TCJA levels, adjusted for inflation. For those that may be impacted by this change, we strongly recommend consulting with your tax advisor and estate attorney to identify potential strategies to help mitigate the impact of this dramatic change.

Conclusion

The approaching TCJA sunset might not only herald higher tax liabilities but also present an opportunity for individuals, investors, and business owners to revisit and refine their financial strategies. Taking action now can ease the transition to the new tax regime and can potentially secure financial advantages even in a shifting fiscal environment. The key message is to stay informed, seek advice, and strategically plan as the 2025 deadline draws closer.

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