The Tax Cuts and Jobs Act (TCJA) was an amendment to the Internal Revenue Code that was rolled out in 2018. It had implications for both businesses and individuals. However, most TCJA provisions are set to be sunsetted at the end of 2025. What does this mean for filers?
Let’s look at the TCJA, how it impacts individuals and businesses, and what to expect when some provisions are sunsetted.
What was the Tax Cuts and Jobs Act?
The TCJA was an amendment that “changed deductions, depreciation, expensing, tax credits and other tax items that affect businesses.”1 They also add that some provisions affecting individual taxpayers can also affect business taxes.
Major elements of the change included reductions in tax rates for businesses and individuals, increases in the standard deduction and family tax credits, and efforts to limit deductions for state and local income taxes and property taxes.2 The TCJA was the largest tax code overhaul in three decades.2
How the TCJA Impacted Filers
The TCJA impacted both personal and business taxes. Let’s look at a few of the most notable changes.
Personal Taxes
- Lower Tax Rates–The TCJA reduced tax rates for most individuals and families.3 It maintained seven tax brackets but generally lowered the rates within those brackets.
- Increased Standard Deduction—The standard deduction was nearly doubled for all filing statuses. This change meant fewer taxpayers needed to itemize deductions, simplifying the tax filing process for many.4
- Changes to Itemized Deductions—While the standard deduction increased, several itemized deductions were either reduced or eliminated. This includes a cap on the state and local tax (SALT) deduction and limitations on the mortgage interest deduction.5
- Child Tax Credit—The TCJA increased the Child Tax Credit from $1,000 to $2,000 per qualifying child.6
Business Taxes
- Corporate Tax Rate Reduction—One of the most notable changes was a reduction in the corporate tax rate from a maximum of 35% to a flat rate of 21%.7
- Pass-Through Business Deduction—The TCJA introduced a new deduction for certain pass-through businesses, such as partnerships, S corporations, and sole proprietorships. This deduction allows eligible taxpayers to deduct up to 20% of their qualified business income, subject to certain limitations and thresholds.8
Because this was such a substantial change, we haven’t listed all of the updates here, but they can be found on the IRS website.
What to Expect When the TCJA is Sunsetted in 2025
Now that we understand some of the changes the TCJA included let’s look at what may change if the bill is sunsetted in 2025, as projected.
- The SALT deduction would no longer be capped at $10,000 annually but would be subject to phaseouts at higher income levels.9
- The deduction allowed for mortgage interest would increase from $750k of debt to $1M plus $100k in home equity debt.
- Miscellaneous deductions could return.
- The standard deduction would be cut in half to the level it was before the TCJA.10
- The AMT would apply again to many more taxpayers.9
- The unified lifetime exclusion for estates and gifts would be reduced roughly in half.11
- The TCJA expiration would result in passthrough business income being taxed according to ordinary individual income tax rates without a deduction for qualified business income.12
Overall, the TCJA’s changes to business taxes aimed to promote economic growth, incentivize investment and make the United States more competitive in the global marketplace. The impact varied depending on the business’s size, structure, and industry. Now, the rollback of these changes will impact many taxpayers. How they will affect you depends on your personal financial situation. Talk to your CPA about what to expect.
- https://www.irs.gov/newsroom/tax-cuts-and-jobs-act-a-comparison-for-businesses
- https://www.investopedia.com/taxes/trumps-tax-reform-plan-explained/
- https://www.law.cornell.edu/wex/tax_cuts_and_jobs_act_of_2017_(tcja)#
- https://taxfoundation.org/research/all/federal/the-tax-cuts-and-jobs-act-simplified-the-tax-filing-process-for-millions-of-americans/
- https://www.investopedia.com/tax-deductions-that-are-going-away-4582165
- https://www.taxpolicycenter.org/briefing-book/how-did-tcja-change-taxes-families-children#
- https://www.taxpolicycenter.org/briefing-book/how-did-tax-cuts-and-jobs-act-change-business-taxes
- https://taxfoundation.org/taxedu/glossary/pass-through-business-deduction-sec-199a/#
- https://www.thetaxadviser.com/issues/2023/dec/tax-planning-for-the-tcjas-sunset.html
- https://www.elliottdavis.com/preparing-for-the-tax-cuts-and-jobs-act-sunset/
- https://www.wipfli.com/insights/articles/wam-prepare-for-the-sunset-of-the-current-gift-and-estate-exemption
- https://crsreports.congress.gov/product/pdf/R/R47846
This content is developed from sources believed to be providing accurate information. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.
