The Tax Cuts and Jobs Act (TCJA), enacted at the end of 2017, represents the most significant overhaul of the federal tax code in more than three decades. However, many of its provisions for individual taxpayers are scheduled to expire after 2025. As this deadline approaches, it is crucial to understand the changes that will revert to pre-TCJA law unless further legislative action is taken. Here’s a roundup of ten key tax provisions currently set to go off the books, along with expanded tips for taxpayers.
1. Individual Tax Rates
The TCJA introduced a new graduated tax rate structure for individuals, lowering the top rate from 39.6% to 37% and reducing rates for most other brackets. This provided tax relief across various income levels. However, these rates are scheduled to return to their pre-TCJA levels in
2026.
Tip: Taxpayers should prepare for potential increases in their marginal tax rates by:
- Maximizing Tax-Deferred Contributions: Consider maximizing contributions to retirement accounts like 401(k)s or IRAs to reduce taxable income.
- Roth Conversions: Evaluate the benefits of converting traditional IRA accounts to Roth IRAs while tax rates are still lower.
- Income Shifting: If possible, defer income to future years when higher rates might apply or accelerate income into current years with lower rates.
2. Standard Deduction
The TCJA significantly increased the standard deduction amounts, with annual inflation indexing. In 2024, the standard deduction is $14,600 for single filers and $29,200 for joint filers. This change simplified tax filing for many by reducing the need to itemize deductions.
Tip: After 2025, the standard deduction will revert to much lower amounts. Taxpayers should consider:
- Bunching Deductions: Plan to “bunch” deductible expenses into one year to exceed the standard deduction threshold and benefit from itemizing.
- Charitable Contributions: Coordinate large charitable contributions into a single tax year to maximize itemized deductions.
3. Personal Exemptions
Prior to the TCJA, taxpayers could claim personal exemptions for themselves, their spouses, and each qualifying dependent. The TCJA suspended all personal exemptions from 2018 to 2025.
Tip: Families should prepare for the return of personal exemptions by:
- Reviewing Dependents: Ensure all qualifying dependents are accurately claimed.
- Tax Planning for Families: Understand how the reintroduction of personal exemptions might interact with other family-related tax benefits.
4. Alternative Minimum Tax (AMT)
The AMT is a parallel tax system designed to ensure that high-income taxpayers pay a minimum amount of tax. The TCJA increased the AMT exemption amounts and raised the phase-out thresholds, reducing the number of taxpayers affected by the AMT.
Tip: To manage AMT exposure post-2025:
- Monitor AMT Liability: Use tax software or consult with a tax professional to monitor potential AMT liability.
- Timing of Deductions: Plan the timing of deductions and income to minimize the impact of the AMT.
5. Child Tax Credit (CTC)
The TCJA doubled the Child Tax Credit from $1,000 to $2,000 per qualifying child and introduced a $500 credit for other dependents. Additionally, up to $1,400 of the CTC is refundable.
Tip: Families should plan for the reduction of the CTC after 2025 by:
- Evaluating Other Credits: Look for other available tax credits and deductions that may help offset the loss of the higher CTC.
- Financial Planning: Adjust household budgets to account for potential changes in tax refunds.
6. SALT Deduction
The TCJA capped the deduction for state and local taxes (SALT) at $10,000 per year, a significant change that impacted taxpayers in high-tax states.
Tip: Taxpayers in high-tax states should consider:
- Prepaying Taxes: If the cap is reinstated, consider prepaying state and local taxes in high-income years.
- Exploring Deductions: Investigate other deductions and credits to offset the limited SALT deduction.
7. Moving Expenses
Previously, job-related moving expenses could be deducted if certain criteria were met. The TCJA suspended this deduction for most taxpayers, except for active-duty military personnel.
Tip: After 2025, taxpayers who anticipate moving for work should:
- Timing Moves: Plan moves strategically around tax years to take advantage of the deduction if it becomes available.
- Expense Tracking: Keep meticulous records of all moving expenses to ensure eligibility for the deduction.
8. Mortgage Interest Deduction
The TCJA lowered the cap on mortgage interest deductions to interest on the first $750,000 of acquisition debt, down from $1 million. It also suspended the deduction for interest on the first $100,000 of home equity debt.
Tip: Homeowners should prepare by:
- Refinancing: Consider refinancing existing mortgages to benefit from current rates and potentially reduce acquisition debt.
- Debt Management: Strategize new home purchases and debt levels to maximize deductible interest.
9. Casualty and Theft Losses
Under prior law, taxpayers could deduct unreimbursed personal casualty and theft losses exceeding 10% of their AGI. The TCJA limited this deduction to losses occurring in federally declared disaster areas.
Tip: Taxpayers should:
- Insurance Coverage: Ensure adequate insurance coverage to mitigate potential losses that may not be deductible.
- Document Losses: Keep detailed records of any losses and related expenses to claim deductions accurately if the rules revert.
10. Miscellaneous Itemized Deductions
Before the TCJA, taxpayers could deduct various miscellaneous expenses, including unreimbursed employee business expenses and investment expenses, to the extent they exceeded 2% of AGI. The TCJA suspended these deductions from 2018 to 2025.
Tip: Prepare for the return of these deductions by:
- Expense Tracking: Maintain thorough records of all potentially deductible miscellaneous expenses.
- Tax Planning: Consult with a tax professional to optimize deductions and understand the implications for your tax situation.
Estate Tax
The TCJA doubled the federal estate tax exemption from $5 million to $10 million, with inflation indexing. The exemption for 2024 is a staggering $13.61 million, effectively double that for a married couple.
Alert: After 2025, the estate tax exemption is scheduled to revert to $5 million, adjusted for cumulative inflation since 2018.
Tip: Estate planning strategies to consider include:
- Gifting: Make strategic use of lifetime gift exclusions and annual gifting to reduce the taxable estate.
- Trusts: Utilize trusts and other estate planning tools to manage estate tax exposure effectively.
Conclusion
The expiration of these TCJA provisions could significantly impact taxpayers’ liabilities and filing strategies. Staying informed about these changes and considering proactive planning can help mitigate potential tax increases. Additionally, keeping an eye on legislative developments will be crucial, as Congress may extend or modify some of these provisions based on future economic and political factors. By planning ahead, taxpayers can better navigate the upcoming changes and optimize their financial outcomes.
Ready to navigate the complexities of tax rules and optimize your financial strategy? Contact our dedicated team at The Dickerson Group today! Whether you’re planning for retirement, managing investments, or safeguarding your wealth, we are here to provide personalized guidance tailored to your financial goals. Take the first step towards financial peace of mind and schedule your consultation now.
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