The Tax Cuts and Job Act of 2017 (TCJA) has many provisions that are set to expire at the end of 2025.  This could have quite an impact on both individuals and business owners unless measures are taken by Congress to preserve the expiring line items.

For the individual taxpayer, specifically a high earner, the top marginal tax bracket is set to go back to the pre-TCJA rate of 39.6% versus the 37% it has been since 2017.  It may be worth considering Roth conversions or accelerating income into the 2025 tax year while ordinary income is taxed at a lower rate.  For high-net-worth households, the TCJA increased the estate and gift tax exemption to $13.99 million for an individual or $27.98 million for married filing jointly.  Those exemption limits are scheduled to sunset at end of 2025 and revert to previous levels ($7.25 million and $14.5 million respectively).  The Generation Skipping Transfer Tax exemption is also set to sunset at end of 2025.  This may lead some to require a review of their estate plan in the event of lower estate exemptions.

The TCJA nearly doubled the amount of the standard deduction ($15,000 individual/$30,000 MFJ), so many have lost emphasis on tracking itemized deductions.  Those standard deduction amounts are also set to revert back to pre-TCJA levels, making 2026 a year itemized deductions may be more meaningful.  Of course, there are also several meaningful itemized deductions that are set to either expire or decrease, so work with a tax professional on the best method (standard versus itemized deduction) for your situation.

Another notable item that’s scheduled to sunset and is not directly related to higher earners is the child tax credit.  The TCJA increased the credit to $2,000 per qualifying child as well as increasing the income phase out to $400,000 for those married filing jointly.  Unless changes are made, in 2026 it is scheduled to return to $1,000 per qualifying child with an income phase out of $110,000.

For business owners, the Section 199A provision of TCJA made it beneficial to utilize the flow-through deductions offered by S-corporations by offering owners the ability to deduct up to 20% of business income.  If this provision sunsets for 2026, it may be worth considering filing as a C-corporation if tax rates are reduced as expected.

It may be useful to work with your advisor and tax professionals to see if there are actions you should take in the current tax year to plan for these anticipated changes.

While American Trust Wealth does not give tax advice, we regularly work with our client’s tax professionals to ensure a coordinated approach to ensure the best outcomes. We do anticipate Congress will take up tax reform before year-end, but action is unlikely before mid-term elections are over in November. Please work with your Fiduciary Investment Advisor and tax professional for any questions you may have.