What. A. Month. It’s almost as if there is a master plan to keep all of us in a continuous state of crazy.
If we let it.
Massive IT outage? Check. Attempted assassination? Check. Presidential incumbent dropping out of the race? Check. Possible overhaul of the tax system on the horizon? Possibly…
There’s a lot out there that could be majorly disrupting your peace right now. Uncertainty does that. Some of these above (or all, if you live in DC) could in fact have a big impact on your Richland County life and family. Which makes you that much more tempted to dive into reactionary mode rather than action-ary mode.
And in these moments, I like to give my Columbia, SC clients a reminder to not let those things take front and center in your life. Don’t let social media doomscroll and the non-stop news cycle keep you focused on things that you ultimately don’t have much control over. We can work on this together because it isn’t easy for me either.
It’s summer. There are plenty of other things we can be enjoying with our team rather than getting caught up in the echo chamber of online doom.
And, as you know, I’ll be keeping my eye on the changes to tax codes and other important financial matters that actually will impact you. I’ll make sure those updates that affect you are in these regular musings I post.
Today’s blog is one of those pertinent updates: the Tax Cuts and Jobs Act (TCJA) expiration. Now, this won’t happen until the end of 2025 – or not at all if Congress gets legislation in place to maintain the TCJA provisions. But for the sake of being prepared, let’s look at how the expiration would affect you…
TCJA Expiration Must-Knows From Akuathayre Snell
“Change is inevitable. Growth is optional.” – John C. Maxwell
With the upcoming election swirling, a major issue on the horizon is the potential expiration of key provisions from the Tax Cuts and Jobs Act (TCJA) of 2017. This legislation, which brought significant changes for taxpayers, is set to expire at the end of 2025 unless Congress takes action.
To give an idea of what the tax increases could look like for you if it expires:
- Single parent with two kids making 50K per year: 1,500 increase.
- Married couple with two kids making 85K per year: 1,700 increase.
- Married couple with two kids making 165K per year: 2,500 increase.
- Single filer making 75K per year: 1,700 increase.
In this economy, every dollar counts. So, don’t depend on Congress to act on your behalf here. Expect the best, but plan for the worst, right? (Especially if you’re in the upper tax bracket).
So, how can you get ready?
Tax Brackets
If the TCJA provisions continue: Tax brackets continue to be lower across the board (anywhere from 1-3 percent).
After the TCJA expiration: The highest tax rate will jump from 37 percent back to 39.6 percent, along with increases in most tax brackets (ex: 24 percent will go to 28 percent and so on). The 10 percent tax bracket won’t change.
If you’re well-heeled enough, you might also have to worry about the Alternative Minimum Tax (AMT) exemption — the threshold will go up in 2026 potentially affecting 8 million taxpayers versus the 300K that are currently impacted. Long-term capital gains (LTCG) taxes will also once again be tied to your income tax bracket.
Standard Deduction
If the TCJA provisions continue: The standard deduction was doubled, but the personal exemption was removed.
After the TCJA expiration: The standard deduction is scheduled to drop back, possibly to half its current amount, but you will be able to itemize more deductions again.
Start planning now to “bunch” as many deductible expenses as possible into 2026. The 10K cap on state and local tax (SALT) deductions and the 750K limit on the itemized mortgage-interest deduction will also be removed.
Estate Tax
If the TCJA provisions continue: The federal estate and gift tax exemption was doubled according to the total value of the estate or gifts.
After the TCJA expiration: The exemption reverts to its pre-TCJA amount, which experts think will be about half of the current amount.
To tackle this, consider gifting under the current gift-tax exemption annually per recipient or converting a traditional IRA to a Roth IRA, which incurs income taxes now but not on withdrawals later. Trusts, such as a spousal lifetime access trust or a charitable remainder trust, can also be useful strategies for Columbia, SC taxpayers.
Other changes:
The Child Tax Credit. The credit will revert to 1K per child, significantly impacting middle-class families.
Pass-through Deduction (Section 199A). The TCJA allowed a deduction of up to 20 percent on qualified business income from pass-through entities, but that deduction will sunset if the TCJA expires which means more tax burden on small business owners and entrepreneurs.
If Congress chooses (depending on the majority controlling it in the coming years) to keep the TCJA provisions active, then you’ll get to continue enjoying the benefit of lower taxes. But, if things continue on the TCJA expiration course, then planning now ensures you aren’t surprised down the road.
Even though laws and strategies change over time, we’re always here to guide you through it. If you want to discuss tax planning moves for yourself with TCJA stuff or on any other front, grab a time here:
Be prepared,
Akuathayre Snell