Many of the tax breaks implemented during the Trump administration will come to an end in 2025. While corporate tax cuts were made permanent, individual tax rates will revert to pre-2017 levels at the end of this year. The future of the tax code will largely depend on the political landscape after the 2024 election, with Republicans hoping to maintain the cuts, Democrats seeking to revise rates, and the possibility of a bipartisan compromise. Julio Gonzalez, CEO and Founder of Engineered Tax Services, Inc., warns that letting the temporary provisions of the Tax Cuts and Jobs Act (TCJA) expire could have a detrimental impact on the economy and working families. Here are three key tax adjustments that individuals need to consider before the changes take effect in 2026.
Firstly, the TCJA lowered income tax rates across the board and restructured bracket spans. Except for those in the 10% and 35% tax rate levels, all income tax rates decreased under the new laws. For example, the top individual tax rate dropped from 39.6% to 37%, and the 15% bracket fell to 12%. However, these changes will result in Americans paying 1% to 4% more in personal taxes unless the provisions are extended, revised, or made permanent.
Secondly, the TCJA nearly doubled the standard deduction for all filing statuses, leading to fewer people itemizing deductions. Prior to the TCJA, the standard deductions were significantly lower. After the TCJA, these amounts increased dramatically. Simplifying the tax filing process, the standard deduction made it possible for many individuals and families to skip the complicated process of itemizing deductions.
Lastly, the TCJA increased estate and gift tax exemptions for individuals. The exemption doubled from $5.49 million in 2017 to $11.18 million in 2018. By 2023, the exemption had increased to $12.92 million, allowing individuals to pass on up to this amount in assets without being subject to federal estate or gift taxes. For married couples, the combined exemption is $25.84 million.
As the expiration of the Trump-era tax cuts approaches, individuals should be prepared for potential changes in their tax obligations. Whether the tax cuts are extended, revised, or allowed to expire will depend on the political landscape in the coming years.
