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Tax Cuts and Jobs Act (TCJA) Sunset is Right Around the Corner: What Might This Mean for You?

Tax Cuts and Jobs Act (TCJA) Sunset is Right Around the Corner: What Might This Mean for You?

| April 24, 2024

Tax Cuts and Jobs Act (TCJA) Sunset is Right Around the Corner: What might this mean for you?

The Tax Cuts and Jobs Act (TCJA) passed in 2017 included several provisions set to expire, or “sunset”, at the end of 2025. This means that unless Congress takes action to extend these provisions, they will no longer be in effect for the 2026 tax year.

Some of the key provisions set to sunset include:

  1. Individual tax cuts: TCJA reduced individual income tax rates and adjusted tax brackets, which are set to revert to pre-TCJA levels in 2026, resulting in more money going back to Uncle Sam each year.

 

  1. Standard deduction and personal exemptions: The TCJA nearly doubled standard deductions and eliminated personal exemptions. These changes will revert in 2026.

 

  1. Child tax credit: The child tax credit increased and was made available to more taxpayers; it expires in 2026.

 

  1. Estate tax exemption: TCJA doubled the tax exemption, effectively reducing the number of estates subject to the tax. This change will expire in 2026.

 

  1. Corporate tax rate: The corporate tax rate was reduced from 35% to 21%. This change was permanent and will not sunset.

 

  1. Qualified Business Income Deduction (QBI): TCJA introduced the QBI deduction and allows eligible taxpayers to deduct 20% of their qualified business income from a partnership, S-Corporation, or sole proprietorship and also sunsets at the end of 2025.

If these provisions expire, it could result in higher taxes for many of us, particularly those in the middle and lower tax brackets who benefited from many of the individual tax cuts and increased child tax credits. Congress could take action to extend or modify these provisions before they expire.

What actions might you consider now?

  1. Review your financial plan: Meet with your financial planner and tax professional to evaluate and adjust your plan and tax strategies to anticipate the tax rate increase and changes in deductions. Consult with your advisory team to understand how the expiring provisions might affect your situation.

 

  1. Consider accelerating income for the 2024 and 2025 tax year: If you anticipate being in a higher tax bracket in 2026 due to the sunset of the lower tax rates, consider accelerating income in 2024 and 2025. This could involve bonuses or realizing capital gains earlier than planned.

 

  1. Continue to evaluate Roth Conversions: Converting traditional IRAs to Roth IRAs in lower income tax brackets might save significant taxes in the long term, as withdrawals from Roth IRAs in retirement are income tax-free.

 

  1. Review Estate Plans: Given the potential changes to estate tax exemptions, reviewing and adjusting your estate plan will be very important. Evaluating gifting or utilizing trusts to manage estate tax liabilities may need to be considered. 

 

  1. Keep informed on legislative changes: Tax laws can change, and new legislation could extend or modify the TCJA provisions. Staying informed will be key!


Every situation is unique, so meeting with your advisory team to apply specific planning strategies to your needs while considering the broader economic and legislative environment is key.

 

Slemrod, J. (2018). Tax Reform and Tax Experts. Journal of The American Taxation Association. https://doi.org/10.2308/atax-52143

 

www.irs.gov