Understanding Potential TCJA Expirations: Implications and Planning Strategies

The Tax Cuts and Jobs Act (TCJA) of 2017 brought sweeping changes to the U.S. tax code, reshaping tax rates, deductions, and credits for individuals and businesses alike. While this legislation has influenced the financial landscape for several years, many of its key provisions are set to expire soon, which could lead to significant shifts in tax liabilities for millions of Americans.

Understanding these looming expirations is vital for strategic financial planning. Whether you’re an individual taxpayer, head of household, or married filing jointly, the end of certain TCJA provisions could affect your financial situation in unexpected ways.

In this blog post, we’ll delve into the major TCJA provisions scheduled to expire, explore their potential impact, and discuss strategies to help you prepare for these changes. By staying informed and proactive, you can position yourself for continued financial success as tax policies evolve.

Background on the TCJA

The Tax Cuts and Jobs Act (TCJA), signed into law in December 2017, marked the most significant overhaul of the U.S. tax code in over three decades. This sweeping legislation aimed to simplify the tax system, lower tax rates for individuals and businesses, and stimulate economic growth.

Key objectives of the TCJA included reducing the corporate tax rate to make American businesses more competitive globally, providing tax relief for middle-income families, and simplifying tax filing for many Americans. The act also sought to encourage companies to repatriate overseas profits and invest in the domestic economy.

The TCJA introduced several major changes:

• Lowered individual tax rates and increased the standard deduction.
• Reduced the corporate tax rate from 35% to 21%.
• Created a new deduction for qualified business income for pass-through entities.
• Placed a $10,000 cap on state and local tax (SALT) deductions.
• Doubled the estate tax exemption.
• Eliminated the individual mandate penalty for the Affordable Care Act.

As we approach the expiration dates for many of these provisions, it’s crucial to understand their potential impact on your long-term financial plan.

Overview of TCJA Provisions Set to Expire

Several key provisions of the Tax Cuts and Jobs Act (TCJA) are set to expire in the coming years, potentially affecting millions of taxpayers. Here are some of the most significant changes on the horizon:

• Individual tax rates and brackets are scheduled to revert to pre-TCJA levels after 2025. This could mean higher tax rates for many Americans across various income levels.
• The increased standard deduction, which nearly doubled under the TCJA, is also set to expire. This could impact those who have been taking the standard deduction instead of itemizing.
• The expanded Child Tax Credit, which increased from $1,000 to $2,000 per child, will return to its previous amount unless Congress extends it.
• The $10,000 cap on state and local tax (SALT) deductions is slated to be lifted, which could benefit taxpayers in high-tax states.
• Limits on mortgage interest deductions are set to change, potentially allowing homeowners to deduct interest on higher mortgage amounts.
• The increased Alternative Minimum Tax (AMT) exemption is set to expire, which could affect more high-income taxpayers.
• The estate tax exemption, which is significantly higher under the TCJA, is scheduled to sunset in 2026 and revert to its pre-TCJA level of $5.6 million (adjusted for inflation).

Implications of Expiring Tax Provisions

The expiring provisions of the TCJA have a range of implications for individuals and families. Understanding these upcoming changes is crucial for effective tax planning. 

First, many taxpayers could see an increase in their tax liability. Under the TCJA, individual income tax rates fell from 10%, 15%, 25%, 28%, 33%, 35%, and 39.6 % to 10%, 12%, 22%, 24%, 32%, 35%, and 37%. With these tax brackets potentially reverting to pre-TCJA levels, your tax bill might be higher, even if your income remains the same. 

Furthermore, the TCJA nearly doubled the standard deduction for individual and joint filers. The expiration of this increased deduction could lead more people to return to itemizing deductions, benefiting some taxpayers while complicating tax preparation for others.

Meanwhile, changes to credits like the Child Tax Credit could affect families significantly. If this credit returns to its previous, lower amount, parents might see a noticeable difference in their tax refunds or the amounts they owe. 

Indeed, the impact will vary across income brackets. Lower and middle-income taxpayers might feel the effects of expired credits and deductions more acutely, while higher-income individuals could see larger changes due to shifting tax rates and the potential return of the AMT for more taxpayers.

Tax Planning Strategies for Individuals and Families

As many provisions of the TCJA approach their expiration dates, it’s wise to take proactive steps to optimize your financial situation. Here are some strategies to consider:

• Accelerate income or defer expenses, depending on your circumstances. If you expect tax rates to increase, it could be advantageous to recognize income now and postpone deductible expenses. 
• Maximize retirement contributions. Consider increasing your contributions to 401(k)s, IRAs, or other tax-advantaged accounts to lower your taxable income.
• Reassess your charitable giving strategies. If the standard deduction decreases, itemizing deductions might become more attractive. Consider “bunching” donations—consolidating two years’ worth of contributions into one year—to maximize the tax benefits.
• Review your estate planning documents. With potential changes to estate tax exemptions, it’s a good idea to revisit your will, trusts, and other estate planning strategies to ensure they still align with your goals and the current tax environment.

By planning ahead, you can position yourself to minimize the impact of TCJA expirations and take advantage of potential opportunities in changing tax laws.

TrueNorth Wealth Is Here to Help

The upcoming expirations of many TCJA provisions could have significant impacts on both individual taxpayers and families. By understanding these potential changes and preparing for them now, you can better position yourself for financial success in the years to come.

Remember, these strategies aren’t one-size-fits-all. If you’re looking for personalized tax and financial planning guidance, TrueNorth Wealth is here to help. Our team of fiduciary CFP® professionals will work with you to create a comprehensive plan that helps you make the most of your financial resources while optimizing your unique tax situation.

TrueNorth Wealth is among the top Wealth Management firms in Utah and Idaho, with offices in Salt Lake City, Logan, St. George, and Boise. At TrueNorth Wealth, we focus on helping our clients build long-term wealth while maximizing the enjoyment they receive from their money. We do this by pairing our clients with a dedicated CFP® professional backed by an incredible team.

For our team at TrueNorth, it’s about so much more than money. It’s about serving families all across Utah and helping them achieve freedom and flexibility in their lives. To learn more or schedule a no-cost consultation, visit our website at TrueNorth Wealth or call (801) 316-1875.