During his election campaign, President-elect Donald Trump promised to extend several provisions in his signature Tax Cuts and Jobs Act, 2017 law. Made radical changes to the tax code And gave financial relief to almost every taxpayer.
Many of those provisions are set to expire at the end of 2025, such as the current individual tax brackets and the standard deduction. If Republican lawmakers are unable to pass legislation to advance TCJA reforms next year, more than 6 in 10 filers will face tax increases in 2026. According For an analysis of the tax foundation.
Although those dates may seem far off, passing a major tax bill before the TCJA provisions expire next year represents a significant undertaking by Congress. In addition to expanding the tax breaks, Trump also threatened a number of additional cuts for everyone from tipped workers to senior citizens, while promising to eliminate taxes on Social Security income.
Duncan Campbell, tax leader in Baker Tilly's private wealth practice, told CBS MoneyWatch that extending the TCJA “will put people in a stable place.” But “we'll probably see nothing and wake up in 2026 when everything is back to where it was before the TCJA, and some people who didn't think about it are going to be like, 'Oh shoot',” he said.
In the law firm's tax planning with clients, Campbell said Baker Tilly is preparing as if the TCJA provisions could expire at the end of 2025. This helps people protect themselves financially and avoid getting caught out if Congress fails to pass an extension. ,
“Get dressed like everything is going to go into the sunset,” Campbell advised. “Something is going to happen with the TCJA, but there's a full year left for things to happen before there's a new administration and a new Congress.”
Here's what to know about potential federal income tax changes in 2025 and how they could affect you.
Could the Trump tax brackets be eliminated?
The expiring Tax Cuts and Jobs Act provisions that could impact the largest number of taxpayers are the law's tax brackets, which if Congress fails to extend the changes under the 2017 law, their pre- The TCJA will return to the border.
Another provision that could impact millions of taxpayers is the TCJA's larger standard deduction. Under the tax law, the standard deduction nearly doubled, providing more Americans with a larger shield against their income. The standard deduction, which reduces a taxpayer's taxable income, Desire The limit in 2025 will be $15,000 for single taxpayers and $30,000 for couples filing jointly.
But if that provision expires, the standard deduction will drop to $8,350 for single filers and $16,700 for joint filers in 2026, according to the Tax Foundation. Individual exemptions, which were eliminated under the TCJA, will return to $5,300 per filer.
What about the child tax credit?
Without TCJA extension, the child tax credit would also return to its pre-TCJA level in 2026.
“The maximum child tax credit under the TCJA will be reduced from $2,000 back to $1,000 and will begin to phase out at $200,000 and $400,000, respectively, in adjusted gross income for single filers, compared to $75,000 and $110,000 for joint filers,” the Tax Foundation said. notes.
Some Republican lawmakers are warning about possible cuts to this tax credit, although they are largely voted against A bill that would have expanded the CTC to provide more relief to low-income families was introduced earlier this year.
In a Dec. 11 statement, House Ways and Means Committee Chairman Jason Smith, a Republican from Missouri, advocated expanding the $2,000 CTC.
“It can be quite challenging to raise a family without Washington kicking the parents out,” Smith said. “But that's exactly what will happen if the 2017 Trump tax cuts are allowed to expire next year.”
Could the $10,000 SALT deduction change?
The state and local tax (SALT) deduction allows taxpayers who pay taxes to deduct property taxes, sales taxes, and state or local income taxes from their federal income taxes. Before the TCJA, there was no limit on how much people could deduct through the SALT deduction.
The TCJA limited the deduction to $10,000 regardless of whether claimants file as a single taxpayer or married filing jointly – a measure that was widely criticized In areas with high property taxes, such as many areas of the Northeast.
In the years since the tax law was passed, more people have been affected by the SALT deduction limitation due to increases in property values and local taxes. On the campaign trail, Trump vowed to scrap $10,000 limit, while his economic adviser Stephen Moore announced Thursday the new administration would like to raise the cap Up to $20,000.
How likely is Congress to extend Trump's tax cuts?
Republicans hold majorities in the House and Senate, as they did in 2017 when Congress passed the Tax Cuts and Jobs Act. This has significantly increased the possibility of extending the tax cut.
At the same time, economists and fiscal experts at the Committee for Responsibility of the Federal Budget are raising concerns about the fiscal impact of prolonging the cuts. assessment That extending all the provisions could increase the deficit by more than $5 trillion by fiscal year 2035.
For their part, Trump campaign officials have planned to cut federal spending as a way to eliminate the nation's growing deficit. Trump has called on billionaires Elon Musk and Vivek Ramaswamy to make recommendations on spending cuts, with the pair saying their Department of Government Efficiency, or DOGE, plans to do so. $500 billion cut In cost.
However, DOGE is an advisory body, not a federal agency, and it remains to be determined how effective the group will be in reducing expenses.
What should you do now before potential tax changes in 2025?
If possible, prepare for TCJA provisions to expire next year, Campbell advised. This will apply most to higher-income Americans, who are more likely to be affected by some of the changes.
For example, the TCJA nearly doubled the lifetime estate and gift tax exemption – the amount people can gift to others without paying taxes – to $13.6 million per individual and $27.2 million for married couples. If the TCJA expires, that would drop to about $7.5 million per individual and $14.5 million for married couples. According For loyalty.
Of course, that change won't impact most Americans, but those with significant assets will want to plan ahead, Campbell said. “If you do nothing, you will lose the ability to move an additional $7 million before the provision expires,” he said.
Another potential change is the elimination of the qualified business income deduction, which allowed small business owners, freelancers, and others who run their own businesses to deduct 20% of their income from their taxes. That tax break is set to expire at the end of 2025.
If it is not extended, small business owners should plan to set aside extra cash to pay higher taxes in 2026, Campbell said. “The law is what it is today, and it's about to end,” he said. “This must be first and foremost in our planning.”