Everyone (well, maybe not everyone) recalls with great excitement the Tax Cut and Jobs Act (TCJA) that was passed in December of last year. What many don’t realize is that most of the provisions affecting individual taxes were written into the law to expire after 2025. They had to do this in order to get the bill passed through what is known as budget reconciliation – meaning that they only needed 51 votes in the Senate to pass the bill.
Republicans in Congress are attempting to fix this by passing a bill that would make the individual provisions in the TCJA permanent. To review, this would include:
- Reducing the top individual tax rate from 39.6% to 37%
- Doubling of the standard deduction (but eliminating personal exemptions)
- Capping of state and local tax and mortgage interest deductions
- Doubling of the child tax credit
- Section 199A deduction lowering pass-through income
The chances of this bill becoming law is a subject of much debate. Those supporting tax reform see it as a common sense measure meant to provide simplification and predictability to the tax code. Those focused on budgets and tax revenue see it as an irresponsible ballooning of the federal deficit and a ploy by Republicans to get reelected in November. The plan right now is to get a vote in the House by the end of July and a full vote in Congress before the November mid-term elections.
So what does this mean for you?
In the near term, nothing. The provisions contained in the TCJA are all (presently) in place through 2025, so be sure to take advantage of them.
In the long term, this will determine whether or not there will be a tax planning opportunity in 2025 to make sure that you get all the benefits before the tax law changes in 2026. For long term deals, you need to make sure you’re taking into account the potential change in tax law for any tax impact after 2025.
If you’re interested in more details, you can check out the Tax Foundation’s Fiscal Fact sheet.
We’d love to talk to you about this. If you have any questions, or just want to chat, please do not hesitate to contact us!