Unless Congress steps in to extend certain laws from the 2017 Tax Cuts and Jobs Act (TCJA), they’ll be sunsetting on Dec. 31, 2025. These expiring provisions could impact you, whether you’re an individual or a business owner. It’s a good idea to start planning now to make sure you’re ready for any changes that might occur.
This article on the key tax laws set to expire in 2025 is part of a series of informational articles to help you better understand which TCJA laws are scheduled to sunset and how the changes may impact your tax planning strategies. Each article will delve into the specifics of a certain tax provision and is intended to educate as well as offer suggestions that can help minimize any negative tax implications. Articles in this series include:
Why was the TCJA created?
There were three primary goals of the comprehensive tax reform:
- Stimulate economic growth: The TCJA aimed to stimulate investment and spending by lowering tax rates and providing tax relief. Proponents expected these measures to drive economic growth, boost wages, and create jobs. With reduced individual tax rates and a higher standard deduction, taxpayers were anticipated to see an increase in take-home pay.
- Simplify the tax code: The TCJA sought to reduce the complexity of the tax code, making it easier for taxpayers to file their returns and understand their tax obligations.
- Make U.S. businesses more competitive: The act aimed to reduce the corporate tax rate and provide incentives for companies to invest domestically rather than moving operations overseas as well as lead to increased capital investment and expansion by businesses.
What TCJA changes were important for taxpayers?
The act changed several provisions that had significant effects for some taxpayers, including but not limited to the following:
For individuals
- Lower tax rates: The TCJA reduced individual income tax rates across most brackets. The seven tax brackets remained, but the rates were generally lower, ranging from 10% to 37% (down from a maximum of 39.6%).
- Increased standard deduction: The standard deduction nearly doubled under the TCJA and reduced the number of taxpayers who itemized deductions. For 2024, it is $14,600 for single filers and $29,200 for married couples filing jointly; for 2017, it was $6,350 and $12,700, respectively.
- Changes to deductions and credits: The TCJA made significant changes to various deductions and credits. For instance, it limited the deductibility of state and local taxes (SALT) to $10,000 for both single and married filers; limited mortgage interest deductions to $750,000 mortgage debt for homes purchased after Dec. 15, 2017; and eliminated itemized deductions subject to the 2% adjusted gross income (AGI) floor, like unreimbursed employee expenses, brokerage and IRA fees, and tax return preparation fees.
- Increased child tax credit: The TCJA doubled the child tax credit from $1,000 to $2,000 per qualifying child under age 17. Additionally, the income phaseout threshold was raised significantly, making more taxpayers eligible.
- Estate tax exemption: The exemption limits increased from approximately $7 million (individuals) and $14 million (married couples) in 2017 to $13.61 million and $27.22 million respectively in 2024. The lifetime annual exclusion, the amount that you can give away tax free during your lifetime, is equal to the estate exclusion.
For businesses
- Corporate tax cuts: The TCJA permanently reduced the corporate tax rate from a graduated scale topping out at 35% to a flat 21%.
- Section 199A deduction for pass-through entities: The TCJA introduced a 20% deduction for qualified business income (QBI) from pass-through entities (such as S-corporations, partnerships, and sole proprietorships). This deduction was available to individuals, trusts, and estates, to lower the tax rate on qualified income.
- 100% bonus depreciation: Businesses could immediately expense 100% of the cost of qualified property, including both new and used equipment, placed in service after September 27, 2017, and before January 1, 2023.
- Limitation on interest expense deduction: The TCJA permanently limited the deduction for business interest expense to 30% of the business’s adjusted taxable income (ATI). For tax years beginning after 2021, ATI is calculated without adding back depreciation, amortization, or depletion.
- Net operating loss (NOL) limitation: The TCJA changed the rules for deducting net operating losses permanently. Before 2017, NOLs were fully deductible and could be carried back two years and carried forward 20 years.
Why are certain aspects expiring while others are not?
The TCJA included a mix of laws with different expiration dates for these reasons:
- Individual tax provisions: Certain tax cuts, including the ones listed above, are set to expire at the end of 2025, mainly due to the legislative process that required they be temporary under budget reconciliation rules. At the time, the intention was to fit within the budgetary constraints while still providing significant benefits. Some provisions were designed to be revisited and potentially revised or extended based on future economic conditions and political negotiations.
- Corporate tax provisions: The reduction of the corporate tax rate from 35% to 21% was made permanent to offer long-term stability and predictability for businesses, supporting the goal of enhancing global competitiveness. Additionally, making the interest expense deduction and NOL limitations permanent helps offset taxable income, providing businesses with greater liquidity, and lowering their cost of capital.
| TCJA Tax Reform Items | Permanent | Sunset Dec. 31, 2025 |
| Lower tax rates | √ | |
| Increased standard deduction | √ | |
| Changes to deductions and credits | √ | |
| Increased child tax credit | √ | |
| Estate tax exemption | √ | |
| Corporate tax cuts | √ | |
| Section 199A deduction for pass-through entities | √ | |
| 100% bonus depreciation | √ | |
| Limitation on interest expense deduction | √ | |
| NOL limitation | √ |
What’s next
The TCJA was a game-changing piece of legislation that shook up the landscape for both individuals and businesses. By cutting tax rates, streamlining the tax code, and aiming to boost economic growth, the TCJA set out to revamp the American tax system in a significant way. While some provisions are temporary, the effects of the TCJA could play a part in shaping U.S. tax policy and economic trends for years to come.
In separate articles, we provide specifics on tax laws that are set to expire and provide financial steps to help you plan for the changes.
If you have concerns about how tax law changes may impact you or your business, contact your wealth advisor for guidance. In addition to financial planning and investment management, we offer tax, estate, and insurance strategies, all managed by a single team. If you’re not yet a Mercer Advisors client and want to know more about our comprehensive wealth management solutions, let’s talk.
1.“Make The Tax Cuts and Jobs Act’s expiring provisions part of your 2024 tax season plan,” Thomson Reuters, March 20, 2024.
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