CWG Insight Series: Preparing for the End of 2017’s Tax Cuts
In 2017, former President Trump led the passing of The Tax Cuts and Jobs Act (TJCA). There were some downsides, like the SALT deduction cap, but many upsides, like lower rates, the QBI deduction, and record high estate tax exemptions. As strategic advisors, we have been able to use these tax laws to our clients’ advantage since going into effect for the 2018 tax year.
These were not permanent tax laws however, and they are set to “sunset”, or expire, at the end of 2025. If the current administration is to stay in office, we feel the sunset of these tax breaks will surely come to pass, resulting in quite a bit of tax and estate planning that will need to be redone in 2025 to prepare for the changes that go into effect January 1, 2026. Should the Republicans take office, we feel there’s a good chance these laws get extended, and we can continue planning as we are today. Being that this is still unknown, we are currently doing our research and implementing tax and estate planning software that will allow us to react in 2025, if need be.
Once the chess board is known, your Crown Personal CFO will consider your personal tax situation carefully and build a plan for moving the pieces in 2025, 2026, and beyond.
Key Provisions Expiring in 2025:
Individual Income Tax Rates: The TCJA lowered individual income tax rates across various brackets, often 3% to 4%. These rates will revert to pre-2018 levels, resulting in higher taxes for most taxpayers.
Standard Deduction: The TCJA nearly doubled the standard deduction, currently $29,200 for a married couple, but it will revert to lower levels, estimated at $16,600, decreasing the amount of income that is tax-free.
Child Tax Credit: The credit was increased from $1,000 to $2,000 per child with a higher phase-out threshold. This will return to the previous lower amount and threshold.
State and Local Tax Deduction (SALT): Currently capped at $10,000 by the TCJA, this will expire, potentially allowing for higher deductions for taxpayers in high-tax states.
Estate and Gift Tax Exemption: The exemption amount was doubled under the TCJA, currently $27,220,000 for a married couple, but will revert to the pre-2018 level, estimated at $14,000,000, significantly lowering the tax-free transfer amount.
Alternative Minimum Tax: Increased exemption amounts and phase-out thresholds for the AMT will revert to lower levels, potentially subjecting more taxpayers to this tax.
Qualified Business Income Deduction (Section 199A): This 20% deduction for pass-through business income (LLC, Partnership, S-Corp) will expire, increasing the effective tax rate on such income.