During his election campaign, President-elect Donald Trump pledged to expand many provisions of his signature Tax Cuts & Jobs Act, a 2017 law that has reviewed the tax code and gave nearly every taxpayer a financial break.
Many of these provisions will expire at the end of 2025, such as the current individual tax brackets and the standard deduction. If Republican lawmakers can’t pass legislation to extend TCJA reforms next year, more than 6 in 10 filers will face a tax increase in 2026. seconds to an analysis of the Tax Foundation.
While these dates may seem far off, passing a major tax bill before provisions of the TCJA expire next year represents a significant commitment by Congress. Beyond expanding tax breaks, Trump also made a series of additional cuts for everyone from tipped workers, promising to eliminate tip taxes, to seniors, promising to eliminate income taxes on the Social Security.
Expanding the TCJA “will keep people in a stable place,” Duncan Campbell, tax leader of Baker Tilly’s private wealth practice, told CBS MoneyWatch. But “We may see nothing and wake up in 2026 with everything going back to pre-TCJA, and some people who didn’t think about it say, ‘Oh, shoot,'” he added.
In the law firm’s tax planning with clients, Campbell noted that Baker Tilly is preparing as if provisions of the TCJA could expire at the end of 2025. This helps people protect themselves financially and prevents he’ll stick it in the foot if Congress doesn’t approve an extension. .
“Prepare as if anything could happen,” Campbell advised. “Something will happen to the TCJA, but there’s a whole year of things that have to happen before a new administration and a new Congress.”
Here’s what to know about potential federal income tax changes in 2025 and how they might affect you.
Could Trump’s tax breaks expire?
The expiring provisions of the Tax Cuts and Jobs Act that could affect the largest number of taxpayers are the tax brackets in the law, which would return to their pre-TCJA thresholds if Congress does not extend the changes under the 2017 law.
Another provision that could also affect millions of taxpayers is the TCJA’s larger standard deduction. Under the tax law, the standard deduction nearly doubled, giving more Americans a bigger shield for their income. The standard deduction, which reduces a taxpayer’s taxable income, will to be $15,000 for single taxpayers in 2025 and $30,000 for couples filing jointly.
But if that provision expires, the standard deduction would drop to $8,350 for single filers in 2026 and $16,700 for joint filers, according to the Tax Foundation. Personal exemptions, which were eliminated under the TCJA, would return to $5,300 per filer.
What about child tax credit?
Without a TCJA extension, the child tax credit would also return to its pre-TCJA level in 2026.
“The maximum child tax credit would return to $1,000 from $2,000 under TCJA and begin phasing out at $75,000 of adjusted gross income for single filers and $110,000 for joint filers, up from $200,000 dollars and $400,000, respectively, under the TCJA Tax Foundation.” notes
Some Republican lawmakers are sounding the alarm about the possible cut of this tax credit, albeit largely voted against a bill earlier this year that would have expanded the CTC to give more relief to low-income families.
In a Dec. 11 statement, House Ways and Means Committee Chairman Jason Smith, a Missouri Republican, defended the $2,000 CTC extension.
“Raising a family can be hard enough without Washington pulling the rug out from the parents,” Smith said. “But that’s exactly what will happen if Trump’s 2017 tax cuts are allowed to expire next year.”
Could the SALT $10,000 limit deduction change?
The State and Local Tax (SALT) deduction allows itemized taxpayers to deduct state or local property taxes, sales taxes, and income taxes from their federal income taxes. Before the TCJA, there was no limit to how much people could deduct using the SALT deduction.
The TCJA limited the deduction to $10,000 regardless of whether claimants file as a single filer or married filing jointly, a move that was widely criticized in regions with high property taxes, such as many areas in the Northeast.
In the years since the tax law was passed, more people have been hit with the SALT deduction limit due to increased property values and local taxes. On the campaign trail, Trump promised to discard the $10,000 limit, while his economic adviser Stephen Moore said Thursday the new administration I would like to lift the lid up to $20,000.
How likely is Congress to extend Trump’s tax cuts?
Republicans hold majorities in the House and Senate, as they did in 2017 when Congress passed the Tax Cuts and Jobs Act. This greatly increases the odds of extending the tax cuts.
At the same time, economists and fiscal hawks are expressing concern about the fiscal impact of extending the cuts, with the Committee for a Responsible Federal Budget. loving that extending all provisions could add more than $5 trillion to the deficit through fiscal year 2035.
For their part, Trump campaign officials have proposed cuts to federal spending as a way to eliminate the nation’s growing deficit. Billionaires Elon Musk and Vivek Ramaswamy have been tapped by Trump to create recommendations on spending cuts, with the pair saying his Department of Government Efficiency, or DOGE, plans cut $500 billion in costs
However, DOGE is an advisory body, not a federal agency, and it remains to be seen how effective the group will be in reducing spending.
What should you do now about possible tax changes in 2025?
If possible, prepare for TCJA provisions to expire next year, Campbell advised. This will be more applicable to higher-income Americans, who are more likely to be affected by some of the changes.
For example, the TCJA nearly doubled the lifetime estate and gift tax exemption (the amount people can give to others without paying tax) to $13.6 million per person and $27.2 million of dollars for a married couple. If the TCJA expires, it would drop to about $7.5 million for an individual and $14.5 million for a married couple. seconds to Fidelity
Of course, this change wouldn’t affect most Americans, but those with significant assets may want to plan ahead, Campbell said. “If you do nothing, you’ve lost the ability to transfer another $7 million” before the provision expires, he added.
Another potential change is the expiration of the qualified business income deduction, which allowed small business owners, freelancers and others who own their own business to deduct 20% of their income from their taxes. This tax reduction will expire at the end of 2025.
If that doesn’t extend, small business owners should plan to set aside extra money to pay higher taxes in 2026, Campbell said. “The law is what the law is today, and it will expire,” he said. “That should be first and foremost in our planning.”