It’s that time of year when tax professionals begin reaching out to clients to plan for the upcoming tax season. This year, however, tax planning for TCJA expiration presents unique challenges due to the expiration of the Tax Cuts and Jobs Act (TCJA) at the end of 2025 and the uncertainty surrounding upcoming elections.
Why Tax Planning for TCJA Expiration is Difficult
Tax planning often involves strategies like deferring income or bunching expenses, but this year, the looming expiration of the TCJA and the potential for legislative changes after the 2024 elections make it especially tough. Annie Schwab of Padgett Business Services notes that the unpredictability around tax laws makes it harder than ever for taxpayers and businesses to prepare.
Roger Harris, president of Padgett, adds that whichever party controls Congress, significant tax changes could be enacted before the TCJA expires, so it’s crucial to stay on top of potential shifts.
Key Changes Coming with TCJA Expiration
As the TCJA is set to expire on December 31, 2025, here are some key changes that could affect your tax situation:
- Individual tax rates: The current rates, which range from 10% to 37%, will revert to pre-TCJA levels in 2026. The top tax rate will rise from 37% to 39.6%.
- Standard deduction: The nearly doubled standard deduction will also revert to pre-TCJA levels, reducing deductions by nearly half for many taxpayers.
How TCJA Expiration Will Impact Itemized Deductions
Several important changes will affect itemized deductions in 2026:
- SALT Deduction: The $10,000 cap on state and local tax deductions will expire, allowing taxpayers to deduct more for state and local income taxes, property taxes, and more.
- Mortgage interest deduction: The current limit of $750,000 for mortgage interest deductions will increase to $1 million, and home equity loan interest deductions will return.
- Miscellaneous itemized deductions: Suspended under the TCJA, these deductions will return in 2026 for amounts that exceed 2% of your adjusted gross income.
- Child Tax Credit (CTC): The CTC, currently $2,000 per qualifying child, will decrease to $1,000 when the TCJA expires.
What Business Owners Need to Know About the TCJA Expiration
Business owners should also prepare for changes when the TCJA expires:
- Qualified Business Income (QBI) Deduction: The 20% deduction for pass-through entities and sole proprietors will no longer be available starting in 2026.
- Bonus depreciation: Bonus depreciation will phase out completely after 2025, leaving businesses unable to claim 100% bonus depreciation on qualifying property.
Tax Credits and TCJA Expiration: Navigating the Clean Vehicle Credit
The Clean Vehicle Credit is one of the more complex aspects of tax planning. As the TCJA expires, ensuring compliance with credit requirements for electric vehicles is crucial. To qualify, your modified AGI must not exceed certain thresholds, and the vehicle must meet strict assembly and price requirements. For more detailed information, visit FuelEconomy.gov.
Tax Planning Tips for Preparers: Protecting Client Data
For tax professionals, tax planning for TCJA expiration also means ensuring that client data is secure. A recent breach affecting nearly 3 billion Social Security numbers has prompted the IRS to recommend that tax preparers encourage clients to obtain an IP PIN. Additionally, the IRS requires preparers to implement a Written Information Security Plan (WISP) and adopt the "Security Six" to protect sensitive data.
The IRS has provided a WISP template to help professionals meet these security requirements.
If you find yourself with tax problems of any kind, don't hesitate to contact us for help and guidance. That's what my team and I are here for.
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