For taxpayers, 2025 brings the scheduled expiration of several key tax cuts enacted as part of the 2017 Tax Cuts and Jobs Act (TCJA).
While legislative discussions are underway to extend or make permanent many of the provisions that are scheduled to sunset, taxpayers and advisors need to plan and act using laws and regulations as they are currently written.
Given the unpredictability of the legislative process, it’s not an effective strategy to assume tax cuts are going to be enacted or extended. Instead, we recommend planning for cuts to sunset as planned and taking steps in advance to mitigate potential negative effects.
Business Tax Provisions That Are Scheduled to Expire
The following business tax cuts are scheduled to expire in 2025:
- The 20% deduction for qualified business income (Section 199A) for pass-through entities such as partnerships and S-corporations will no longer be available. This could effectively increase taxable income by up to 20% for many small business owners.
- Changes to the business interest deduction limitations may affect capital-intensive businesses.
For family-owned businesses and high net worth individuals, changes to the estate tax exemption could be significant. The estate tax exemption is scheduled to return to pre-TCJA levels. This could mean an estimated $14.3 million for married couples in 2026, compared to about $28.6 million under current law. This change could affect succession planning for some family-owned companies.
Business Tax Provisions That Are Not Scheduled to Expire
The following TCJA provisions for businesses are not scheduled to sunset:
- The research and development (R&D) expense amortization requirement will remain in effect unless modified by Congress.
- The reduction of the corporate tax rate from 35% to 21%.
- The $500,000 excess business loss limitation for individuals.
- The limit of net operating loss to offset 80% of taxable income with no carryback.
- The provision allowing 100% bonus depreciation on certain capital investments will continue to phase down to 40% in 2025 before being eliminated by 2027.
Individual Tax Provisions That Are Scheduled to Expire
The following individual tax cuts are scheduled to expire in 2025:
- The TCJA nearly doubled the standard deduction, which will revert to lower amounts adjusted for inflation. As scheduled, the standard deduction for married couples will drop from approximately $30,725 back to around $16,600 in 2026.
- The TCJA lowered marginal income tax rates across various income brackets. If these provisions expire, rates will revert to pre-2017 levels, including a top rate increase from 37% back to 39.6%.
- The cap on State and Local Tax (SALT) deductions will be lifted, allowing taxpayers to deduct all eligible state and local taxes instead of being limited to $10,000.
- The enhanced child tax credit is set to decrease significantly. The current credit of $2,000 per child may revert to lower amounts, impacting families with children.
Planning for Tax Changes
The sunset of the TCJA presents challenges and opportunities. To prepare for the potential TCJA sunset provisions at the end of 2025, companies should begin planning now to understand the scheduled changes and take proactive steps to mitigate any negative effects. Early planning allows companies to:
- Maximize current benefits under existing laws.
- Reduce uncertainty by preparing for multiple scenarios.
- Protect generational wealth and ensure long-term tax efficiency.
While every taxpayer’s situation is unique, the following guidelines may offer starting points:
- Assess your current tax position. Take inventory of your assets and determine the fair market value of your estate. If you are above or close to the expected estate tax exemptions in 2026, a gift of assets might be advisable before the exemption decreases. Work with your estate attorney and accountant to monitor legislative changes and be prepared to make any gifts before the end of the year
- Accelerate tax benefits. Consider accelerating income or deductions into the current tax year. For example, explore ways to maximize depreciation benefits under Section 179 and bonus depreciation rules while they remain favorable.
With careful planning, taxpayers can position themselves for success in a potentially higher-tax environment starting in 2026. To learn more, or to discuss your tax planning needs, contact us.
