By Dejan Ilijevski
The 2017 Tax Cuts and Jobs Act (TCJA) made sweeping changes to the U.S. tax code. The chief goal of the act was to stimulate the economy by reducing taxes on both individuals and businesses. However, many of the provisions of the TCJA are facing a 2025 tax sunset and shall end on December 31 of that year.
Most of the expiring provisions relate to individual taxes. While there may be some efforts to extend them through legislation, it’s better to plan for their end. Now is the best time to take a closer look at your estate plan and personal tax status to adjust for the 2025 tax sunset.
Here’s a brief look at the changes ahead and what to consider before these programs end.
The 2025 Tax Sunset’s Effect on Individuals
Individual taxpayers need to be aware of changes to the following provisions:
Higher Tax Bracket
The TCJA established lower tax brackets for individuals through the end of next year. As part of the 2025 tax sunset, most, if not all, individuals may move to higher tax brackets. Those near the middle tax brackets are likely to be most affected.
Standard Deductions and Personal Exemptions
The TCJA nearly doubled taxpayers’ standard deduction and suspended personal exemptions. When the 2025 tax sunset arrives, the standard deduction drops and personal exemptions are reinstated.
Child Tax Credit
The TCJA boosted the Child Tax Credit to $2,000 per child, offering a dollar-for-dollar reduction of taxes. It also made $1,400 of that credit refundable. With the 2025 tax sunset, this credit reverts to $1,000 with no refundable amount.
State and Local Taxes
The 2017 act placed a $10,000 limit on state and local tax (SALT) deductions. This limit is set to expire with the tax sunset. Taxpayers living in states with high taxes, like New York, New Jersey, and California, may see benefits from this provision, but the federal government may experience a significant tax burden.
The 2025 Tax Sunset’s Effect on Businesses
Here are some of the ways businesses may be impacted by the 2025 tax sunset:
Full Deductions on Expenses
The TCJA allowed businesses to deduct the full cost of several capital investments (including machinery and equipment) in the year the expenses were incurred rather than spreading them out over multiple years of depreciation. This benefit ends with the tax sunset, and businesses may have higher taxable incomes as a result.
Pass-Through Business Income Deduction
The Tax Cuts and Jobs Act allowed some owners who operate pass-through businesses—partnerships, S corporations, and sole proprietorships—to deduct up to 20% of their qualified business income from their taxable income. This deduction also expires with the tax sunset, meaning small businesses may face higher tax liability.
Bonus Depreciation
The TCJA permitted businesses to deduct up to 100% of depreciable equipment and machinery in the year they were purchased. This benefit won’t be available after the tax sunset, meaning expenses must be spread across future years.
Potential Opportunities
To navigate the changes that come with the 2025 tax sunset, individuals may look into converting to a Roth account while lower tax rates are in effect. With the estate tax exemption scheduled to be halved in 2016, it may be a good idea to make lifetime gifts before the sunset while the higher exemption is still in effect.
Prepare for the 2025 Tax Sunset
Whether you’re an individual or a business leader, SCM Investment Services can help better your financial position before the 2025 tax sunset.
Are you ready to make the most of your financial journey? To schedule a complimentary introductory meeting or request a free financial health checkup, call (612) 324-0629, email dejan@scminvesting.com, or contact us online.
About Dejan
Dejan Ilijevski is Financial Advisor, Investment Manager, and Founder of SCM Investment Services, an independent, fiduciary, fee-only financial advisory and investment management firm based in Lake Elmo, Minnesota. With an evidence-based approach to investing grounded in economic theory and reliant on insights from financial science, he customizes globally diversified portfolios of mutual funds and ETFs for his clients. With 20 years of experience in the trading/financial services industry, and described as trustworthy and community-oriented, Dejan is passionate about helping individuals and families, prioritizing their best interest first and foremost.
Originally Dejan pursued a career in research and technology but was recruited by a startup trading firm at the Chicago Board of Trade. He took advantage of this rare opportunity, curious to learn more about capital markets. Dejan’s technical background provided a unique skill set, and by the end of his rookie year, he routinely transacted over $1 billion in U.S. Treasury notes daily, making him one of Chicago’s biggest bond traders. He consistently earned the highest profits for the firm for many years and continued to advance professionally in the trading arena.
With newfound experience and insight, Dejan came to realize his parents were being exploited by their financial advisor and that the financial services industry does not work in your best interest. After earning his MBA from the University of Chicago Booth School of Business, Dejan left the trading industry to start an independent financial advisory firm based on integrity and transparency and built on the belief that everyone deserves trusted, knowledgeable financial advice—blending Wall Street expertise with Main Street values.
Serving the broader community as an investor advocate, a proponent for financial literacy, and sponsoring nonprofit initiatives, Dejan is a trusted subject matter resource for many financial news media publications. He and his wife, Daniela, reside in Munster, Indiana, with their two kids. In his free time, he enjoys road cycling, reading, playing soccer, traveling, going on adventures (even skydiving!), and serving local charities. To learn more about Dejan, connect with him on LinkedIn.
