The Tax Cuts and Jobs Act (TCJA) was a comprehensive tax reform bill signed into law on December 22, 2017, and became effective on January 1, 2018. It was the largest overhaul of the American tax code since the Tax Reform Act of 1986.
Many TCJA provisions, including lower marginal tax rates in every bracket, increased standard deductions, and 199A business deductions, will sunset in 2025. Without new legislation, tax rules will revert to pre-2018 legislation.
Find out what the sunsetting of the Tax Cuts and Jobs Act means for you and prepare for upcoming changes with assistance from the professionals at Windes.
Which TCJA Provisions Are Set to Expire After 2025?
Although the TCJA introduced numerous sweeping changes to the U.S. Tax Code, many are temporary and expire on December 31, 2025. Many of these changes will end or revert to pre-2018 law on January 1, 2026, unless new legislation is introduced to extend these TCJA provisions. Changes for individual taxpayers and businesses include the following:
TCJA Provisions Not Sunsetting in 2025
Not all TCJA provisions are expiring as of December 31, 2025. Some provisions are permanent unless Congress acts to change them. Some provisions have been extended by other congressional acts. The TCJA provisions that are not sunsetting as of December 31, 2025, include:
- No changes for C Corporations. The corporate tax rate introduced by the TCJA, a flat 21% rate, will remain permanent.
- Research and Experimental Costs under IRC Section 174 must be capitalized and amortized over 5 years if the activity is domestic and 15 years if the activity is foreign.
- Limitations on Deduction for Business Interest Expenses introduced by the TCJA are permanent under IRC Section 163(j).
- Limitation on Excess Business Losses for individuals was extended through 2028 under the Inflation Reduction Act of 2022.
- Net Operating Loss (NOL) Utilization for losses incurred after December 31, 2017, remains limited to 80% of taxable income with indefinite carryforward and no carryback.
- Bonus Depreciation deductions reduced by 20% each year through 2026 and will expire thereafter.
- Global Intangible Low-Taxed Income (GILTI) and Foreign-Derived Intangible Income (FDII) provisions are permanent. For tax years beginning after December 31, 2025, deductions allowable for domestic corporations are reduced to 37.5% for GILTI and 21.875% for FDII, previously 50% and 37.5%, respectively.
What the Changes Mean for Individual Taxpayers
The expiration of TCJA provisions will affect the tax liabilities of individuals and families nationwide. Here is a breakdown of what you can expect as an individual taxpayer:
- Increased incentives to itemize deductions. Removing the SALT deduction cap and reducing the standard deduction will make itemizing deductions more likely.
- More complex tax planning. The end of many TCJA simplifications will increase the need for professional tax advice to navigate the new landscape and optimize tax strategies based on relative tax positions.
- Impact on high-income earners. If TCJA provisions lapse, high-income individuals may encounter higher tax rates and increased vulnerability to the Alternative Minimum Tax (AMT).
How the TCJA Sunset Affects Business Taxes
If the 20% 199A deduction expires, owners of S corporations, partnerships, LLCs taxed as partnerships, and sole proprietorships may experience increased tax burdens. It is advisable to consult a tax expert to understand the specific impact on your business.
Prepare for the Tax Cuts and Jobs Act Sunset with Windes
With the right professional tax guidance, you and your organization can effectively navigate the upcoming expiration of the TCJA and maximize your tax strategies. We specialize in individual and business accounting services and will prepare you for future tax changes. Our team can help you with the following:
- Compliance and strategy preparation. Windes will ensure your business complies with all existing laws while preparing for new regulations post-TCJA sunset. Our experts review and ensure adherence to local, state, and federal tax laws and can craft a detailed, strategic tax plan for your firm.
- Minimization of tax liabilities. Our team will research and implement strategies that reduce your tax burden and maximize available credits and deductions.
- Strategic financial advice. We will review your financial strategies and provide customized accounting advice to optimize cash flows. Our expertise in the automotive, manufacturing, real estate, and construction industries allows us to tailor our strategies to mitigate the potential financial impacts from the TCJA’s sunset, ensuring your business remains resilient and profitable.
Connect with us today. Work with our tax professionals now to prepare for these potential tax adjustments.