By Henry Zupko, MBA, CFP®
Some potentially significant tax changes on the horizon may affect both individuals and businesses. The 2017 Tax Cuts and Jobs Act (TCJA) established several laws that are expiring in 2025, leading to what is being referred to as the 2025 Tax Sunset. When critical changes like these are about to occur, it’s important to understand how those potential changes may affect your overall financial picture. Knowledge is power, as they say, and staying informed helps you make smart financial decisions.
Here’s an overview of what the 2025 Tax Sunset entails, including what’s expiring and the potential ramifications.
Impact on 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 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 allows families with children to reduce their taxable income; this allowance would expire.
- 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 New Jersey, California, and New York could benefit. The downside is that eliminating the deduction cap could potentially shift the tax burden to the federal government.
Impact on 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 expenses 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.
2025 Tax Sunset Not Yet Decided
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 can 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.
Are You Prepared?
This uncertainty around the upcoming tax changes can be unsettling. That’s why it’s important to prepare your finances for any eventuality. A great way to do this is to consult with a trusted professional financial advisor.
At Tranquility Path Investment Advisors, we specialize in guiding pre-retirees and retirees toward a more confident financial future, and this includes your tax liability. As independent fiduciaries, we always prioritize your needs and goals. We work to earn your trust by gently guiding you through our process and demonstrating genuine care for your situation. Our approach involves educating you so you not only walk away with a solid strategy, but you understand what we’re doing and why. We’ll be your true partner on your financial journey.
If you’re ready to work with us to align your finances with the upcoming 2025 Tax Sunset, schedule an introductory meeting online or reach us at (908) 759-6322.
About Henry
Henry Zupko is founder and president at Tranquility Path Investment Advisors, LLC, an independent Registered Investment Advisor firm dedicated to putting their clients first, always. With over 30 years of experience, Henry sets the direction of the firm, manages, and in many cases personally interacts with clients to help develop financial strategies that set them on a tranquil retirement path. He is passionate about being a trusted partner to his clients, developing long-lasting relationships so he can guide them through life’s milestones, twists, and turns. In all he does, Henry strives to make a positive impact on others and help change their lives for the better.
Henry is a CERTIFIED FINANCIAL PLANNER™ professional and holds an MBA from the University of Massachusetts and a bachelor’s degree in electrical engineering from the New Jersey Institute of Technology. Henry is a proud Eagle Scout who loves traveling the world and spoiling his grandchildren. To learn more about Henry, connect with him on LinkedIn.
