During his campaign, President-elect Donald Trump promised to expand many provisions of his signature 2017 law, the Tax Cuts and Jobs Act. The tax law was completely revised. and provided fiscal relief to nearly all taxpayers.
Many of these provisions, such as the current personal tax and basic deductions, are set to expire at the end of 2025. If Republican lawmakers fail to pass legislation extending TCJA reforms next year, more than six in 10 filers will face tax increases in 2026, according to an analysis by the Tax Foundation.
Although these dates may seem far away, passing major tax legislation before the TCJA’s provisions expire next year represents a significant effort by Congress. Beyond extending the tax cuts, President Trump dangled a number of additional cuts, from tipped workers, who promised to eliminate taxes on tips, to seniors, who promised to eliminate taxes on Social Security income.
Duncan Campbell, tax leader in Baker Tilly’s personal wealth practice, told CBS MoneyWatch that extending the TCJA “will keep people in a stable place.” However, “it’s possible that in 2026 we won’t see anything and wake up and everything will be back to before the TCJA. Some people who weren’t thinking about that will think, ‘Oh no.’ ” he added.
In tax planning with the law firm’s clients, Campbell noted that Baker Tilly is preparing as if the TCJA provisions could expire at the end of 2025. This would help people protect themselves financially and avoid being hit hard if Congress fails to pass an extension.
“Prepare as if everything is going down into the sun,” Campbell advised. “Something is going to happen with the TCJA, but first a new administration and a new Congress have a year to make things happen.”
Here’s what you need to know about potential federal income tax changes in 2025 and how they will affect you.
Could President Trump’s tax plan expire?
The expiring Tax Cuts and Jobs Act provision that could affect the largest number of taxpayers is the law’s tax brackets, and if Congress fails to extend the changes under the 2017 law, will return to the standard.
Another provision that could impact millions of taxpayers is the TCJA’s standard deduction expansion. Under the tax law, the standard deduction would nearly double, giving more Americans a bigger shield on their income. The standard deduction, which reduces a taxpayer’s taxable income, will be $15,000 for single taxpayers and $30,000 for married couples filing jointly in 2025.
But if that provision were to expire, the standard deduction would shrink to $8,350 for single filers and $16,700 for joint filers in 2026, according to the Tax Foundation. The personal exemption that was eliminated under the TCJA will be reinstated at a cost of $5,300 per filer.
What about the child tax credit?
Without the TCJA extension, the child tax credit would also return to pre-TCJA levels in 2026.
“Child tax credit caps revert from $2,000 to $1,000 under the TCJA, compared to $200,000 and $400,000, respectively, under the TCJA for single filers with adjusted gross income of $70,000. It begins to phase out at $5,000, or $110,000 for joint filers,” the Tax Foundation said. Note.
Some Republican lawmakers are sounding the alarm about the possibility of this tax credit being cut. voted against A bill introduced earlier this year would expand the CTC to provide more relief to low-income households.
House Ways and Means Chairman Jason Smith, a Missouri Republican, advocated for an extension of the $2,000 CTC in a Dec. 11 statement.
“Raising a family can be difficult enough without Washington pulling the rug out from under the parents,” Smith said. “But that’s exactly what will happen if the 2017 Trump tax cuts are allowed to expire next year.”
Is the $10,000 SALT cap deduction subject to change?
The state and local tax (SALT) deduction allows itemized taxpayers to deduct property taxes, sales taxes, and state or local income taxes from their federal income taxes. Before the TCJA, there was no limit to the amount that could be deducted through the SALT deduction.
The TCJA limited the deduction to $10,000 regardless of whether the claimant files as a single taxpayer or as a married couple filing jointly. widely criticized In areas with high property taxes, such as many areas in the Northeast.
In the years since the tax law was passed, rising property values and local taxes have caused more people to reach the salt deduction cap. Trump during election campaign vowed to destroy The cap is $10,000, but economic adviser Stephen Moore said Thursday the new administration wants to raise the cap to $20,000.
What are the chances that Congress will extend the Trump tax cuts?
Republicans hold majorities in both chambers, as they did in 2017 when Congress passed the Tax Cuts and Jobs Act. This greatly increases the likelihood of an extension of the tax cut.
At the same time, economists and fiscal hawks have expressed concerns about the fiscal impact of extending the cuts, with the Committee for a Responsible Federal Budget predicting that extending all provisions would push the budget deficit to more than $5 trillion by fiscal year 2035. We estimate that there is a possibility of an increase.
Meanwhile, Trump campaign officials have suggested cutting federal spending as a way to eliminate the growing budget deficit. Billionaires Elon Musk and Vivek Ramaswamy have been asked by President Trump to make recommendations on spending cuts, and both men say the Department of Government Efficiency (DOGE) plans to: said. $500 billion reduction In terms of cost.
But 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 in the face of potential tax changes in 2025?
If you can, prepare for the TCJA provisions that are set to expire next year, Campbell advised. This is most true for 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 amount (the amount people can gift to others without paying taxes) to $13.6 million per person and $27.2 million for married couples. If the TCJA lapses, that amount would drop to about $7.5 million per individual and $14.5 million per couple, according to Fidelity.
To be sure, the change won’t affect most Americans, but those with large amounts of assets may want to plan ahead, Campbell said. He added: “If we do nothing, we will lose the ability to transfer an additional $7 million before the clause expires.”
Another potential change is the expiration of the Qualified Business Income Credit, which allows small business owners, freelancers and others who own their own businesses to deduct 20% of their income from their taxes. This tax cut is scheduled to expire at the end of 2025.
If it’s not extended, Campbell said small business owners will need to plan to set aside extra cash to pay higher taxes in 2026. He said: “The law is what it is and it will expire at some point.” “That should be number one priority in our plans.”
