Nothing Is Certain but Death and Uh, Taxes?
- 031925
- 2 minutes
President Trump’s Tax Cuts and Jobs Act of 2017 was scheduled to expire at the end of this year, but we may see it extended in some form before then. What will the president and the Republican-majority Congress plan for next year? And how should we be preparing now? There’s still a lot that remains uncertain, but let’s begin with what we know.
The IRS’ tax bracket increases for 2025 were more modest than those in the previous few years, primarily because inflation slowed after its drastic jump during the pandemic. Social Security recipients benefit from a 2.5% cost-of-living adjustment, and we’ll all enjoy a slight rise in standard deductions. The IRS also made several adjustments related to retirement, most notably an increase in the limit on individual contributions to 401(k), 403(b), and 457 deferred compensation plans.
Since 2017, we’ve observed the changes initiated by the Tax Cuts and Jobs Act (TCJA). Along with substantial tax reductions for corporations, the TCJA also lowered tax rates for individual filers. Although it imposed restrictions on state and local tax (SALT) deductions and entirely removed personal exemptions, it simplified the filing process for many. The lifetime estate and gift tax exemption was nearly doubled, enabling individuals to gift up to $13.6 million tax-free. Additionally, the qualified business income (QBI) deduction gave business owners a significant advantage, allowing them to deduct 20% of their revenue from their taxes.
Aside from the corporate tax rate cut, all TCJA provisions are set to expire at the end of 2025. However, with Trump back in office and a Republican majority in both the House and the Senate, it’s anticipated that at least some of the TCJA’s provisions will be extended—though it remains to be seen which ones and to what extent.
For one, Trump has incorporated an extension of the TCJA’s 20% QBI deduction in his policy proposal. Adjusted individual income tax rates are also part of his proposal, aiming to extend or even make these lower rates permanent. However, discussions have also encompassed further changes beyond merely extending the effects of the TCJA.
The new president has proposed further reducing the corporate income tax rate to as low as 15% for companies that manufacture their products in the U.S. During his campaign, Trump spoke about removing the SALT limit altogether; however, more recently, his economic advisor Stephen Moore indicated that the administration merely hopes to double the cap. Trump has also suggested eliminating taxes on overtime pay, tip income, and Social Security benefits. Critics have expressed concerns that such a plan would sharply increase the federal deficit, but measures like spending cuts and tariffs are aimed to offset the revenue loss.
However, even if the president and Congress implement these policy changes, they may not be finalized before the TCJA expires. If lawmakers cannot reach an agreement in time, it is expected that most taxpayers will experience an increase in what they owe, with some estimates indicating that more than 6 in 10 will be impacted. A significant portion of this group will be middle-class Americans. According to the Urban-Brookings Tax Policy Center, approximately 70% of those in the middle quintile (40th to 60th percentile) would pay more. While the corporate tax rate cut will not be reversed, US businesses would also encounter substantial tax changes if the TCJA were to expire.
What can we do now while we wait to escape from tax-law limbo? "Prepare as if everything is sunsetting," advises Duncan Campbell, tax leader in Baker Tilly's private wealth practice. Individuals may want to plan to pay taxes at pre-2017 rates when they file in 2026. Businesses should also consider preparing for the worst. Small business owners, in particular, might want to think about how their taxes could look without the QBI deduction next year. And with the potential for new tariffs on the horizon, U.S. companies that depend on foreign vendors might incorporate that into this year’s budget.
It’s unlikely that the TCJA will expire without some tax revision for 2026. However, it’s impossible to predict what tax laws will be enacted by this time next year.
Perhaps now more than ever, Ben Franklin’s 1789 note to Jean-Baptiste Le Roy rings especially true: “In this world nothing can be said to be certain, except death and taxes.” Well, let’s wait and see about the taxes part.
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