With 2025 in full swing, taxpayers should be aware of critical federal tax breaks set to expire at the end of the year. With the Tax Cuts and Jobs Act (TCJA) of 2017 featuring sunset provisions, many popular deductions and credits could change significantly starting January 2026. Here’s what to expect and how to prepare.
Key Tax Provisions Expiring in 2025
1. Reduced Individual Tax Rates
- The TCJA lowered tax brackets for individuals and families. Without an extension, the rates will revert to 2017 levels, increasing taxes for many.
- Example: The current 12% tax bracket could return to 15%, while the 22% bracket may rise to 25%.
2. Doubled Standard Deduction
- The standard deduction, nearly doubled under the TCJA, will also expire:
- 2025 Standard Deduction: $13,850 (single), $27,700 (married filing jointly).
- 2026 Projected: Roughly half of current levels.
- This change may push more taxpayers to itemize deductions.
3. Expanded Child Tax Credit
- The credit, currently at $2,000 per child, will drop to $1,000 unless extended.
- Income phase-out thresholds may also tighten, reducing eligibility for middle-income households.
4. State and Local Tax (SALT) Deduction Cap
- The $10,000 cap on SALT deductions is set to expire, potentially benefiting high-tax state residents if not renewed.
5. Qualified Business Income (QBI) Deduction
- Small business owners and self-employed individuals currently enjoy a 20% QBI deduction. This provision ends in 2025 without Congressional action.
Impact on Taxpayers
The expiration of these provisions will likely result in higher tax liabilities for many individuals, families, and small businesses. Planning ahead is essential to minimize the financial impact.
How to Prepare for 2025 and Beyond
- Evaluate Your Tax Bracket:
- Assess how higher tax rates in 2026 might affect your finances and consider strategies like accelerating income into 2025.
- Maximize Deductions and Credits:
- Take advantage of the higher standard deduction, child tax credit, and other expiring benefits.
- Consult a Tax Professional:
- A tax expert can help you identify opportunities to soften the impact of these changes.
Final Thoughts
While Congress could extend or modify these provisions, it’s crucial to prepare now for potential tax increases in 2026. Stay informed and proactive to optimize your tax strategy.
For more details, visit the IRS Tax Reform Page or get in touch with our firm.
Disclaimer: This blog is intended for informational purposes only and should not be construed as tax advice. Please consult a tax professional for personalized assistance.
