The 2017 Tax Cuts and Jobs Act (TCJA) is set to expire at the end of 2025, and without Congressional action, a number of these tax cuts will sunset or revert to their pre-2018 levels. So, what does this mean for you?
In this short Finance Moment podcast episode, Chief Planning Officer Matt Roberts, MFM, CFP®, CAP® shares the potential tax implications for both individuals and businesses if the TCJA provisions expire.
Today we’re discussing something that could hit all our wallets soon—the potential sunset of the 2017 Tax Cuts and Jobs Act. This is a big deal, and if you’re wondering why, stay tuned because it might affect your tax bill in the next few years.
So, what is the 2017 Tax Cuts and Jobs Act, or TCJA, all about? Well, it was one of the most significant overhauls of the U.S. tax code in decades. Signed into law by former President Trump, the TCJA cut individual tax rates, nearly doubled the standard deduction, increased the child tax credit, and slashed the corporate tax rate from 35% to 21%. It also capped certain deductions, like state and local taxes, which had ripple effects in high-tax states.
In short, it’s been a sweeping reform that’s changed the tax landscape for individuals and businesses alike.
But here’s the kicker: many provisions of the TCJA are set to expire after 2025. That’s right—without Congressional action, a number of these tax cuts will sunset or revert to their pre-2018 levels. So, what does this mean for you?
Let’s start with individual taxpayers. Right now, the tax brackets are lower than pre-TCJA. For example, the top individual tax rate is 37%, down from 39.6%. But when the TCJA sunsets, those rates will go back up unless Congress passes new legislation. For middle-class Americans, this could mean higher tax bills in the near future.
Another big change is the standard deduction. The TCJA nearly doubled it, which simplified tax filing for millions of Americans. If you’ve been claiming the standard deduction instead of itemizing, this has likely saved you a good amount of money. However, when the law sunsets, the standard deduction will shrink again, which could lead to higher taxable income for many households.
The child tax credit also increased under the TCJA. It went from $1,000 to $2,000 per child. But, with the sunset, this credit could drop back down, which would directly affect families with children.
Now, what about corporate taxes? One of the most debated aspects of the TCJA was the reduction of the corporate tax rate from 35% to 21%. This was seen as a way to stimulate investment and make U.S. companies more competitive globally. However, unlike individual tax provisions, the corporate tax cut is permanent. So, regardless of the sunset of individual tax provisions, businesses will continue to enjoy this lower rate unless Congress makes changes.
Now, let’s turn to something that often flies under the radar—the estate tax. If you’ve been thinking about wealth transfer or estate planning, this is a big area to watch.
Under the TCJA, the estate tax exemption was doubled. In 2024 estates valued at less than $13.61 million for individuals (or roughly $27.22 million for married couples) are exempt from the estate tax. That means only the very wealthiest estates are currently affected. But here’s the catch—this provision will also sunset after 2025. If no new legislation is passed, the estate tax exemption will revert to its pre-2018 level, which was $5.49 million per person. This will be adjusted for inflation and would likely grow to somewhere between $7 to $7.5 million.
For those who have built up significant assets, this change could mean substantial estate tax liability. Essentially, estates valued above the reduced exemption will be taxed at a rate of up to 40%. So, if you’re planning on passing down a large inheritance, now may be a critical time to revisit your estate plans.
There’s a lot of uncertainty, but it’s crucial to be proactive. Estate planning strategies, like trusts or gifting during your lifetime, could help minimize your future estate tax burden. So, talking to an estate or financial planner before 2025 might save your heirs a significant amount of money.
So, what should you do as we head toward this potential sunset?
First, stay informed. This issue will likely become a hot topic as we get closer to 2025, so keep an eye on any developments in Congress. The reality is that we likely won’t know until the end of 2025, so planning for the possibility of a sunset is important.
Second, it would be a good idea to consult your financial planner to see how impacts your unique situation. You can call us at (515-225-6000 to talk with one of our CERTIFIED FINANCIAL PLANNER™ practitioners. They can help you navigate the potential changes and adjust your financial plans accordingly. Whether it’s taking advantage of current tax breaks or preparing for future rate increases, being proactive could save you a lot of stress—and money.
That’s it for today’s Finance Moment. Thanks for tuning in to learn about the potential sunset of the 2017 Tax Cuts and Jobs Act. If you found this episode helpful, please share it with friends and family who might benefit from the information.