Most of the tax changes in the 2017 Tax Cuts & Jobs Act (TCJA) are set to expire at the end of 2025, with the exception of the permanent provision of lowering the corporate tax rate to 21%. Accountants and taxpayers have become accustomed to these changes, although the 2020 CARES Act temporarily delayed some tax hike provisions. The switch back to pre-TCJA law in 2026 could be confusing, especially if Congress decides to make further changes to the tax code.
With a divided Congress, it is unlikely that significant tax law changes will occur until 2025 when most of the TCJA provisions expire. The upcoming presidential and Congressional election in November 2024 may provide insight into potential tax changes. The 21% corporate tax rate established under TCJA is permanent, while pass-through entities are granted a 20% qualified business income deduction, which is set to expire in 2025. The complexity of this deduction has been a challenge for taxpayers and tax professionals.
Several TCJA provisions, including marginal tax rates, standard deductions, and itemized deductions, are set to expire in 2025. The lower marginal tax rates will return to pre-TCJA levels, along with the standard deduction. Itemized deductions will be affected, with many taxpayers having shifted to taking the standard deduction. Pass-through entities can utilize a state and local tax cap workaround in certain states, but this may also expire in 2025.
The qualified business income deduction, which benefits non-corporate business owners, is set to expire at the end of 2025. This tax cut has been significant for small businesses, including traders who are eligible for trader tax status. The excess business loss limitation, net operating losses, and estate exemptions are also impacted by the TCJA provisions, with changes expected to take effect in 2026.
As the deadline for the expiration of most TCJA provisions approaches, taxpayers and tax professionals may face uncertainty and challenges in planning for future tax obligations. The potential for Congress to make last-minute changes to the tax code in response to the fiscal cliff in 2025 adds to the complexity. It will be crucial for individuals and businesses to stay informed and prepared for the upcoming tax changes, especially as they navigate the evolving landscape of tax regulations.
