As 2024 comes to a close, taxpayers need to brace for significant changes that could profoundly impact their tax obligations. The Tax Cuts and Jobs Act (TCJA), enacted in 2017, introduced sweeping tax breaks and lower rates, but its impending expiration may result in major shifts for individuals and businesses alike.
Designed with built-in expiration dates, TCJA is set to sunset at the end of 2025 unless Congress takes action. If allowed to expire, many of the tax benefits established in 2018 will end, reverting to pre-TCJA rules. This could affect everything from standard deductions to business income taxes, creating a pressing need for strategic tax planning. Joseph Werner, JD, MS (Taxation), president and founder of Werner-Rocca Seminars Ltd., explains what’s at stake:
- State and Local Tax (SALT) Deductions: One notable change the TCJA introduced was a cap on state and local tax (SALT) deductions, limiting taxpayers to a $10,000 deduction. If the TCJA expires, this cap could be lifted, allowing for a total deduction of these taxes again. This change could bring significant tax relief for many, especially those in high-tax states.
- Standard Deduction Adjustments: TCJA doubled the standard deduction, simplifying the filing process for many households. However, this generous deduction may soon shrink, potentially forcing more taxpayers to return to itemizing deductions or face higher taxable incomes.
- Higher Tax Rates and Bracket Adjustments: TCJA lowered individual tax rates, with the top bracket at 37%. If the law expires, we could see a return to a top marginal rate of 39.6%, and income thresholds will likely shift, pulling more taxpayers into higher brackets sooner.
- Reduction in Tax Credits and Possible Return of Exemptions: Tax credits may be scaled back, and personal exemptions removed under TCJA could reappear. While exemptions could provide some relief, reduced credits may ultimately offset this benefit, resulting in higher overall taxes for many families.
- Section 199A Deduction for Small Businesses: Section 199A allows certain businesses to deduct up to 20 percent of qualified business income. This deduction has been a cornerstone of tax planning for business owners. If TCJA sunsets, flow-through businesses could face significant increases in taxable income, resulting in higher tax bills.
As the potential expiration of the Tax Cuts and Jobs Act approaches, taxpayers must evaluate their financial strategies and prepare for what lies ahead. The abovementioned changes could have far-reaching implications for individuals, families, and businesses. Navigating this uncertain landscape requires proactive planning and expert guidance.
Don’t wait to act. Sal Schibell and his team are here to help you understand how these changes could impact your unique tax situation and develop strategies to mitigate potential increases. With Sal’s expertise, you can make informed decisions and stay ahead of the curve. Contact Sal Schibell (732) 539-7328 or salschibell@lrscpa.com today to safeguard your financial future and ensure you’re prepared for whatever comes next.
Source: Preparing for the Tax Cuts and Jobs Act to Expire. Joseph Werner, JD, MS (Taxation) Werner-Rocca Seminars Ltd. November 18, 2024. CPA Trendlines.