Potential 2025 Tax Law Changes

As we begin 2025 with a new President and a Republican majority in both houses of Congress, it is a good time to consider aspects of the current tax law that are set to expire at the end of 2025, as well as various tax proposals President Trump made throughout his campaign. Understanding these potential changes will help you implement tax planning for 2025 and beyond.

The Tax Cuts and Jobs Act (TCJA), enacted in December 2017, introduced substantial amendments to the U.S. tax code, aiming to streamline tax processes, provide economic stimulation, and foster investment. These changes touched various aspects of individual and corporate taxation. While some provisions are temporary, others offer long-term shifts in taxation policy. Here, we will examine some of the temporary provisions set to expire December 31, 2025, along with proposals President Trump has made regarding those provisions.

Key Provisions of the TCJA due to Expire

1. Lowered Tax Brackets The TCJA reduced tax rates for most individual taxpayers, with the top rate falling to 37% from the previous 39.6%. This reduction benefited high-income earners but was designed to cover a broad swath of income brackets, providing financial relief across socioeconomic groups.
2. Increased Standard Deduction A significant change under the TCJA was the doubling of the standard deduction to what is for 2025 $15,000 for individuals and $30,000 for married couples. These adjustments reduced the number of taxpayers itemizing deductions, simplifying the tax filing process for many.
3. Child Tax Credit Enhancement The TCJA doubled the child tax credit to $2,000 per child and expanded its eligibility criteria, allowing more families to qualify. Up to $1,400 of the credit became refundable, enabling low-income families with little tax liability to benefit.
4. SALT Deduction Cap The TCJA capped the state and local tax (SALT) deduction at $10,000, significantly impacting taxpayers in high-tax states. Critics argued that this disproportionately affected those in states with substantial state and local taxes.
5. Changes to Estate Tax Exemption The TCJA essentially doubled the estate tax exemption, which has since been indexed for inflation to its current 2025 level of $13.99 million per individual. Estates with taxable assets above this amount will be taxed at 40%.

Barring passage of any new Federal tax law, as of January 1, 2026:

• Individual tax brackets will revert to previous levels with the top tax bracket at 39.6%.
• The standard deduction will be halved, making it more beneficial for many taxpayers to itemize deductions again.
• The cap for mortgage acquisition debt on which interest is deductible will go back to $1 million from the current $750,000.
• The child tax credit will be reduced.
• State and local income, real estate and property taxes will again be fully deductible.
• Federal estate tax exemption will be cut in half.

During his campaign, however, President Trump presented proposals that could modify these provisions or eliminate the year-end expiration date. These include permanentizing the lower tax brackets and increased standard deduction, as well as increasing the child tax credit to $5,000 per child without income limits, an adjustment intended to provide more support for families, particularly in light of rising childcare costs.

He also mentioned allowing the cap on state and local income tax (SALT) deductions to lapse, restoring higher deduction possibilities, and proposed additional deductions for interest on loans for U.S.-built cars, and for home generators in natural disaster-prone areas. He has also suggested making the higher estate tax exemption permanent or even repealing the estate tax altogether.

The TCJA introduced a 20% deduction for qualified business income from pass-through entities (e.g., LLCs, partnerships, and S corporations). This provision is also temporary, expiring in 2025. President Trump proposed making this deduction permanent, citing its importance for small businesses. However, medical practices are considered a specified service trade or business (SSTB) and are not eligible for this deduction unless an individual taxpayer’s income is below certain threshold amounts ($494,600 for married taxpayers filing jointly in 2025).

Tax rates for C corporations were permanently reduced to 21% under the TCJA. President Trump, however, has proposed a further rate cut for corporations to 20% or even 15%.

What You Should Do

The general expectation is that President Trump will try to pass a new tax law early in his term since Republicans have a majority in both houses. If individual tax rates continue at a top rate of 37%, with expanded brackets of lower tax rates, continuing to fund Roth accounts will make sense for many taxpayers.

Recent gains in the stock market have increased the balances in qualified retirement plans. Traditional plans such as 401(k)s, 403(b)s and IRAs will have required minimum distributions (RMDs) when taxpayers reach age 73 or 75, depending on their year of birth. Roth accounts do not have such requirements. For those who have more savings in retirement plans than they will need, converting some of the funds to a Roth, or adding current funding to Roth accounts, could make sense.

If the SALT cap is allowed to expire while standard deduction increases are extended, many taxpayers will again find it more beneficial to itemize deductions vs. taking the increased standard deduction. Allowing the mortgage interest deduction on up to $1 million of debt would further enhance itemized deductions for many taxpayers. Itemizing deductions will also make charitable contributions more beneficial, thus donating appreciated assets to charity can be a key component of efficient giving.

For taxpayers who are owners of pass-through entities, an extension of the Section 199A qualified business income (QBI) deduction will extend the tax cuts on business income. If that business is an SSTB such as a medical practice, utilizing tools such as a cash balance plan to increase deductions may help bring taxable income below the threshold amounts thereby making the QBI deduction allowable.

Conclusion

Efficient tax planning in 2025 will require paying attention to proposed tax law changes and working with your advisors as any new legislation is passed to make sure you fully understand how to create a tax efficient wealth plan.