The TCJA, adopted in 2017, made significant changes to the United States tax law, however many aspects are transitory and will expire at the end of 2025. Key modifications include:
1.Individual Tax Rates: The existing tax bands and rates are set to return to pre-TCJA levels, thereby raising tax payments for many families. For example, the highest individual rate would climb from 37% to 39.6%.2. Standard Deduction: The expanded standard deduction-currently $13,850 for single taxpayers and $27,700 for married couples filing jointly-will be drastically reduced, while personal exemptions, which were repealed under the TCJA, will be reinstated.
3.Child Tax Credit: The credit amount is projected to be reduced from $2,000 to $1,000 per child, with tougher income restrictions, making it less accessible to middle-income families.
4.SALT Limitation: Currently, the itemized deduction for state and local income taxes is limited to $10,000 per year. That cap will expire after 2025. There has already been discussion of boosting it to $20,000, while some advocate letting it expire.
Changes 1-3 on the list above may result in increased tax bills for many Americans unless Congress acts to extend or alter the provisions. Change #4, on the other hand, would lower taxes for higher-income households.
Every year, the IRS changes numerous tax rules to account for inflation, and 2025 will be no different. Key updates include:
These modifications are intended to avoid "bracket creep," in which inflation pulls taxpayers into higher bands, raising their burden despite no actual gain in buying power.
Good news for savers. Contribution limitations for some retirement accounts, such as 401(k)s and Self Employed Retirement (SEP) plans, will rise in 2025, but IRA contribution limits stay fixed.
These changes reflect the IRS's efforts to match savings opportunities with inflation, ensuring that Americans are well prepared for their golden years.
With the next presidential election and changing priorities in Congress, there is considerable discussion over whether key TCJA features, such as the controversial federal Child Tax Credit, should be renewed or allowed to expire. Key subjects being discussed include:
Furthermore, the prospect of proposing additional tax breaks for sustainable energy projects or small enterprises may influence the legislative agenda in the next year.
If you have any concerns about how these revisions may affect your financial position or would want individualized advise, please call our office immediately for experienced advice to help you plan for the next year.