"Turning Complexity into Confidence."

‹ Back

Navigating the 2025 TCJA Expirations: Key Tax Changes Ahead
 

The Tax Cuts and Jobs Act (TCJA) of 2017 transformed the U.S. tax code, but many of its provisions are set to expire or change after 2025. These adjustments will significantly impact individuals, businesses, and estate planners, making proactive tax planning essential. Below, we break down the critical changes and provide actionable strategies to mitigate risks and optimize financial outcomes.

 

Key Individual Tax Changes

Marginal Tax Rates will revert to pre-TCJA levels in 2026, with the top rate climbing from 37% to 39.6%. This shift means higher-income taxpayers—particularly those earning over $500,000 annually—could see their tax liabilities rise by tens of thousands of dollars. The standard deduction, which nearly doubled under the TCJA, will also decrease to pre-2018 amounts. As a result, more taxpayers may need to itemize deductions post-2025 to maximize savings.

 

Families will face reduced benefits as the Child Tax Credit (CTC) drops from 2,000to2,000to1,000 per child, with stricter income phaseout thresholds. Additionally, the $500 credit for non-child dependents, such as elderly parents or college students, will disappear entirely. On a brighter note, personal exemptions, suspended under the TCJA, will return, allowing taxpayers to deduct exemptions for themselves and dependents—a critical relief for middle-income households.

 

High-tax state residents will regain flexibility as the $10,000 cap on state and local tax (SALT) deductions lifts, restoring unlimited deductibility. Meanwhile, miscellaneous itemized deductions—including unreimbursed employee expenses, tax preparation fees, and investment advisory costs—will once again become deductible, offering relief to those who itemize. Homeowners with large mortgages should prepare for stricter limits: the mortgage interest deduction will revert to pre-TCJA rules, capping deductible acquisition debt at $1 million (down from $750,000).

 

Business Tax Changes

Businesses face a dual challenge as several TCJA incentives sunset. The 20% Qualified Business Income (QBI) deduction, a lifeline for pass-through entities like partnerships and S corporations, will vanish entirely. This loss could erode profitability for small businesses, particularly in competitive industries. Bonus depreciation, which allowed businesses to immediately deduct 100% of qualifying asset costs, will phase down to 0% by 2027. Companies relying on this provision should accelerate equipment purchases before 2026 to lock in savings.

 

Multinational corporations must brace for higher tax burdens. The Base Erosion Anti-Abuse Tax (BEAT) rate will rise from 10% to 12.5%, and certain credits will lose their BEAT-favored status, increasing liabilities for firms with cross-border transactions. Additionally, deductions for Foreign-Derived Intangible Income (FDII) and Global Intangible Low-Taxed Income (GILTI) will shrink, reducing incentives for foreign-derived profits. Employers offering on-site meals or cafeterias will lose deductions for these expenses, raising operational costs.

 

Estate and Gift Tax Adjustments

The estate tax exemption, currently $13.61 million per individual (2024), will revert to approximately $7 million (adjusted for inflation) in 2026. This change could expose millions of dollars in estate value to taxation, particularly for high-net-worth families. Proactive gifting and trust strategies are critical to shielding wealth before the deadline.

 

Other Notable Expiring Provisions

• Opportunity Zones: Tax deferrals and exemptions for capital gains reinvested in Opportunity Zones will expire after 2026, eliminating a key incentive for real estate and economic development investments.

• Moving Expenses: Deductions for qualified relocation costs and employer reimbursements will return, benefiting employees transitioning for work.

• Casualty/Theft Losses: Taxpayers may again deduct losses exceeding 10% of adjusted gross income (AGI), offering relief after natural disasters or theft.

 

Effective Dates and Exceptions

Most changes take effect on January 1, 2026, but exceptions apply:

• The employer credit for paid family and medical leave, extended through 2025, expires December 31, 2025.

• Bonus depreciation phases out incrementally, with the final allowance ending in 2027.

• Opportunity Zone benefits sunset on December 31, 2026.

 

Strategic Planning Considerations

Timing income and deductions will be paramount. Taxpayers in higher brackets may benefit from deferring income to 2026 if they expect lower earnings that year, or accelerating income into 2025 to capitalize on current lower rates. Paying state and local taxes in 2026 could optimize deductions under the expiring SALT cap. Families should document expenses like unreimbursed work costs or casualty losses, which will regain deductibility.

 

Businesses should prioritize accelerating capital expenditures to leverage bonus depreciation. Pass-through entities facing the loss of the QBI deduction might explore restructuring as C corporations, though this requires careful analysis of double-taxation risks. Multinational firms must audit BEAT and GILTI exposures to avoid surprises under the higher 12.5% BEAT rate.

 

High-net-worth individuals must act swiftly to leverage current exemptions. Gifting assets up to the 2024 exemption ($13.61 million) before 2026 can shield wealth from future taxes. Tools like irrevocable trusts or charitable remainder trusts (CRTs) can remove assets from taxable estates while providing income streams or philanthropic benefits.

 

The TCJA’s 2025 sunset is not merely a technical adjustment—it is a financial pivot point. A family earning 500,000 could see their annual tax bill rise by by $15,000 or more. Small businesses reliant on the QBI deduction may lose 20% of their tax savings, eroding margins in an uncertain economy. Estates above $7 million could face steep tax bills if exemptions halve as projected.

 

Engage a tax advisor now to turn these challenges into opportunities. By acting decisively, you can secure savings, protect assets, and navigate the post-TCJA landscape with confidence.

 

Copyright: This article is original and copyright © Alphakey Advisory LLC. This article may not be reproduced, copied or used in any way, in whole or in part, without permission. The information provided here is general in nature and should not be regarded as legal, accounting, or tax advice from Alphakey Advisory LLC. Readers are advised that this material may not apply to or suit their specific circumstances, and additional considerations—both tax and non-tax—may be necessary before undertaking any action based on this content.