Many provisions from the 2017 Tax Cuts and Jobs Act (TCJA) are slated to expire in 2025, potentially leading to substantial tax adjustments for individuals and businesses alike.

In anticipation of pivotal events like the 2025 Tax Sunset, our firm is dedicated to equipping both current and future clients with comprehensive insights to facilitate well-informed financial planning decisions.

Outlined below is an overview detailing the anticipated effects of the 2025 Tax Sunset, encompassing the provisions set to expire and their potential implications.

Individual Taxes

Let’s start with an explanation of how the 2025 Tax Sunset could affect individual taxpayers.

• Lower income tax brackets: The lower tax brackets that were put in place by the Tax Cuts and Jobs Act (TCJA) will revert to pre-2017 levels. That means that millions of taxpayers could potentially be pushed into higher tax brackets.
• Decreased standard deductions and personal exemption: By decreasing both standard deduction amounts and personal exemptions, the 2025 Tax Sunset could cause higher taxable income for individual filers.
• Child tax credit: Currently, the child tax credit provides a dollar-for-dollar reduction of your tax liability for each qualifying child; this allowance would expire under current regulation.
• State and local tax (SALT) deduction cap: If the current $10,000 cap on deductions for state and local taxes expires, residents in high-tax states like California, New York, and New Jersey could benefit. The downside is that eliminating the deduction cap could potentially shift the tax burden to the federal government.

Business Taxes

Here’s a snapshot of how the 2025 Tax Sunset could impact business taxes:

• Full expensing of deductions: This temporary condition that allows instant expensing of business expenditures would expire. For affected businesses, the result would be increased taxable income.
• Pass-through business income deductions: This tax provision allows the deduction for income from pass-through businesses like partnerships and S corporations. When this law expires, the tax liability for many small businesses could increase.
• Bonus depreciation: Businesses that invest in equipment and machinery will be impacted when this deduction for specific depreciable property disappears.

Uncertainty

Ultimately, the consequences of the 2025 Tax Sunset are unsettled. There’s a possibility that Congress will extend or alter these tax laws before the end of 2025, but if that doesn’t happen, the above changes will take place.

If the 2025 Tax Sunset occurs without intervention from the government, the effects on individuals and businesses will vary contingent upon their unique situations. Some taxpayers would experience an increased tax liability, while others could potentially gain from changes like the SALT deduction cap removal. Or, conversely, some businesses could face a higher tax bill if temporary deductions expire.

Get Ready Today

To best prepare for the potential changes stemming from the 2025 Tax Sunset, consider seeking guidance from a professional financial advisor. At Center for Wealth Management, our team examines your income tax records, expenses, and the impact of investment decisions on both your current and future tax liability. We can also collaborate closely with your tax advisor so your financial plan is well equipped to weather the anticipated changes.

Whether you file taxes independently or operate a business, if you’re ready to partner with us in aligning your finances with the impending 2025 Tax Sunset, let’s connect. Schedule a free introductory meeting online, call (248) 220-4321, or email me at justin@cwmfinancial.net.

About Justin

Justin Williamson is a senior partner and co-owner of Center for Wealth Management, an independent, fee-based wealth management company in Troy, Michigan. Justin has been serving clients in the financial services industry since 2001. He spends his days helping his clients achieve their financial goals and make the best decisions for their families so they can spend time on what they love and experience financial confidence. Justin is known for his dedication, integrity, personal touch, and ability to simplify complex issues. Justin specializes in serving engineers and other professionals who are close to retirement or recently retired and helping them maximize their benefits and create a retirement plan they can rely on. He is a seasoned public speaker and presents at numerous corporate events each year on retirement planning, Medicare, Social Security, and other financial topics. Justin has a bachelor’s degree in Business Administration majoring in Personal Financial Planning from Central Michigan University and is a CERTIFIED FINANCIAL PLANNER™ practitioner.

Outside of work, Justin enjoys spending time with his family. He and his wife, Corinne, have five children between them ranging in age from sixteen to twenty years old. Justin lost his first wife, Heather, to brain cancer in 2020, and thus has experienced firsthand the emotional, mental, and financial challenges spouses and children go through when dealing with such a tragic situation. Outside of work, Justin enjoys coaching or attending baseball, softball, powerlifting, and basketball events, traveling to new locations, and spending time at the family cabin at Higgins Lake. Learn more about Justin by connecting with him on LinkedIn.