Possible Tax Breaks that may be extended this year.

7 Tax Breaks in Limbo: What the Future May Hold Under a New Trump Administration.

As a new administration takes shape in Washington, D.C., President-elect Donald Trump has signaled his intention to extend several key tax breaks established under the Tax Cuts and Jobs Act (TCJA) of 2017. These provisions, set to expire after 2025, significantly impact both individual taxpayers and businesses. While nothing is set in stone, here are seven major tax breaks that may be on the table for extension.

1. Individual Tax Rates: The TCJA lowered the top individual tax rate from 39.6% to 37% and adjusted the income brackets. These changes reduced tax burdens for many Americans. Tip: Tax brackets are adjusted annually for inflation, meaning that even if these rates are extended, the income thresholds will likely increase over time.

2. Standard Deduction: One of the most significant changes under the TCJA was the doubling of the standard deduction—from $6,000 to $12,000 for single filers and from $12,000 to $24,000 for joint filers. In 2024, the amounts are $14,600 for single filers and $29,200 for joint filers, with further increases expected in 2025. Tip: For 2025, inflation adjustments raise the standard deduction to $15,000 for single filers and $30,000 for joint filers.

3. Alternative Minimum Tax (AMT): The AMT is a separate tax calculation designed to ensure higher-income individuals pay a minimum tax amount. The TCJA significantly increased exemption amounts and phase-out thresholds, reducing the number of taxpayers subject to the AMT. Impact: Without an extension, more taxpayers could find themselves paying AMT after 2025.

4. Child Tax Credit (CTC): The TCJA doubled the CTC from $1,000 to $2,000 per child and added a $500 credit for other dependents. Up to $1,400 of the credit is refundable, providing relief for lower-income families. Tip: If the TCJA provisions expire, the CTC would revert to the pre-2017 level, significantly reducing benefits for families.

5. Qualified Business Income (QBI): Deduction A major benefit for small business owners, the QBI deduction allows a deduction of up to 20% of qualified business income for pass-through entities like partnerships, S corporations, LLCs, and self-employed individuals. This deduction is subject to income-based phase-outs, especially for specified service trades or businesses (SSTBs) such as legal and medical practices. Impact: Without an extension, business owners could face higher effective tax rates.

6. Business Interest Deduction: Before the TCJA, businesses could generally deduct all their interest expenses. The TCJA limited this deduction to 30% of adjusted taxable income (ATI), a constraint that could continue if the provisions are extended. Tip: This cap particularly affects leveraged businesses, and its future hinges on congressional action.

7. Estate and Gift Tax Exemptions: The TCJA doubled the estate and gift tax exemption, allowing individuals to transfer more wealth tax-free. For 2025, the exemption is $13.99 million, up from $13.61 million in 2024. However, without an extension, the exemption will revert to pre-2017 levels, significantly increasing tax liability for larger estates. Impact: Wealthy families should consider estate planning strategies now to maximize tax efficiency under the current law.

   
   

What does this mean for you? If these TCJA provisions are not extended, taxpayers and businesses could face higher tax liabilities and reduced deductions after 2025. Staying informed about these potential changes is crucial for effective tax planning.

Reference: Small business tax strategies. Small Business Tax Strategies RSS. (n.d.). https://www.smallbiztax.net/