In 2017, the Tax Cuts and Jobs Act (TCJA) became law, introducing broad-sweeping changes in the U.S. tax code—affecting individual taxpayers and businesses. Fast forward to 2025, and many of these provisions are set to expire by the end of that year in a process known as TCJA sunset. As a business leader, it’s vital for you to understand what happens next. The Tax Cuts and Jobs Act sunset should inform your tax planning and financial decision-making in the coming year.
What is the Tax Cuts and Jobs Act (TCJA), and When Does it Sunset?
The TCJA is a comprehensive tax reform package that had the goal of stimulating economic growth through tax cuts and policy changes. Within it, you’ll find some key components:
- Reduction of individual tax rates
- Reduction of corporate tax rates
- Increased standard deduction
- Limitations on certain itemized deductions
These provisions were designed to be temporary and will, therefore, expire on December 31st, 2025—if not extended. Unless the U.S. legislative branch takes action, the Tax Cuts and Jobs Act sunset means that tax laws will revert to pre-2017 laws. These are just some of the tax changes happening in 2025 that you need to know about.
Key Changes Expected After the TCJA Sunset
Tax Experts following the situation closely expect some or all of these TCJA sunset provisions to occur, and as mentioned, barring legislative intervention, these will happen automatically:
Individual Tax Rates
The TCJA lowered individual tax rates across income brackets, with the top rate reduced from 39.6% to 37%. After TCJA sunset provision, rates are expected to revert to higher pre-TCJA levels.
Standard Deductions and Personal Exemptions
The standard deduction was nearly doubled under the TCJA. At the same time, TCJA eliminated personal exemptions, which were based on the number of people in a tax household (dependants). Post-sunset, the standard deduction will decrease, and personal exemptions will be reinstated.
Estate and Gift Tax Exemptions
The TCJA significantly increased the estate and gift tax exemption amounts, benefiting our high-net-worth clients and their families. We will see them revert to the previous much lower thresholds, potentially subjecting more estates to taxation and making more family gifts taxable.
Child Tax Credit
The credit amount is scheduled to decrease, and eligibility criteria may become more restrictive. The tax credit increase was, in part, an offset to the elimination of personal deductions, allowing families with multiple dependent children to continue to save on taxes. So, presumably, if personal deductions are reinstated, the child tax credit would need adjustment in kind.
Corporate Tax Rate Reduction
Prior to the enactment of the Tax Cuts and Jobs Act (TCJA) in 2017, the U.S. corporate income tax system was a graduated rate system. It became a flat 21% rate for all corporations, effectively raising taxes on those in the lowest tax bracket while reducing them for everyone else. This was made permanent, so it’s not expected to change.
How the TCJA Sunset Could Impact Individuals and Businesses
The sunset of the Tax Cuts and Jobs Act will impact different businesses and individuals in various ways.
Individual taxpayers, including many small businesses not filing as a corporation and our high net worth clients, can expect higher tax rates as sunset would see the standard deduction potentially cut in half and child tax credits reduced. This would be somewhat offset by the reinstatement of personal exceptions. But TCJA was a “tax cut”, so we can expect that most will see taxes increase.
On the corporate side, the rate change was permanent and will not go the way of the other TCJA sunset provisions. But, it’s important to note that other business deductions and credits may change, impacting what effective corporate tax planning will look like in 2025 and going forward.
How to Prepare for the Sunset
Proactive planning is vital to maintain healthy financials in the upcoming years. You must mitigate risks and ensure you’re using the legal tax planning moves to your advantage. Here are some areas in which the expert CPAs at DHJJ suggest you make moves.
1. Accelerate Income Recognition
Where possible, recognize income in 2025, the last year for which most TCJA tax provisions cuts will still be in effect. This would allow you to take advantage of the lower rate on that income. Strategies to do this could include converting traditional IRAs to Roth and exercising stock options before rates go up. Another way you might recognize more incoming in 2025 could include delaying expenses until January 2026 within reason so that they reduce taxable income in that year.
2. Use Gift Exemptions While You Still Can
If you’re a high-net-worth individual considering a substantial gift, it would make sense to do that in 2025. This would not only reduce the taxes that, for example, an adult child might pay on that gift for 2026 forward; it would also minimize future estate tax liabilities.
3. Review Itemized Deductions
Some deduction limits may go up or down after TCJA sunset based on pre-2017 limits. It’s important to review all deductions that may be impacted. Consider accelerating certain deductions to take advantage of current limits or vice versa.
Importance of Working with a Tax Professional
A qualified tax professional can provide personalized strategies to optimize your tax position. We can ensure compliance and efficiency while limiting your exposure to less favorable tax changes. Engaging with professionals early allows for the development of a comprehensive plan tailored to your financial situation. Imagine having all of 2025 to plan and start making these moves. You’ll find you have more options to position yourself for whatever TCJA sunset brings. The experienced expert CPAs are here to help you navigate tax planning. Reach out to start a conversation.
