World Stock Watch

Uncertainty Looms Over Tax Code as Provisions Near Expiration

The tax landscape is facing a significant shift as provisions from the Tax Cuts and Jobs Act (TCJA) are set to expire in 2025. This uncertainty has left many wondering what the future holds for their tax situation.

A Brief History of the Tax Cuts and Jobs Act

In 2017, the Trump Administration passed the TCJA, one of the largest tax cuts in U.S. history. The law focused on reducing corporate taxes, high-income individual taxes, and doubling the standard deduction for individuals. However, many of the law’s provisions were written with a “sunset provision,” meaning they are set to expire within a set number of years.

What’s at Stake?

Several key provisions are set to expire, including:

• The elimination of personal exemptions, which allowed larger families to claim larger deductions
• The doubling of the standard deduction, which gave a tax break to most individuals
• The lowering of tax brackets
• The restructuring or elimination of itemized deductions, including miscellaneous deductions, state and local tax deductions, mortgage interest, charitable contributions, and unreimbursed medical expenses
• The doubling of the child tax credit from $1,000 to $2,000 per-child
• The doubling of the lifetime exemption for gifts and estates
• The 20% tax deduction for “pass-through” income for small businesses and self-employed individuals

What Happens If the Provisions Expire?

If the TCJA provisions expire, many households will see significant changes to their tax situation. For example:

• A married couple with two children will see their taxable income reduction decrease from $30,725 to $27,135
• Tax brackets will reset to their 2017 levels
• Itemized deductions will return, including miscellaneous deductions, state and local tax deductions, and mortgage interest
• The child tax credit will revert to its previous incarnation of $1,000 per-child
• The lifetime exemption for gifts and estates will revert to its inflation-adjusted rates of half its current value
• The 20% tax deduction for “pass-through” income will expire

What Can You Do?

To navigate these changes, consider speaking with a financial advisor who can help you build a tax-efficient strategy to manage your wealth. Start planning your taxes early and avoid the last-minute scramble. A financial advisor can also help you build a comprehensive retirement plan and provide guidance on estate planning, gifting, and more.

Remember to keep an emergency fund on hand in case of unexpected expenses and consider opening a high-interest savings account to earn compound interest.

The future of the tax code is uncertain, but with the right guidance, you can prepare for whatever changes come your way.