Navigating Tax Changes: Key Insights and Strategies for Individuals and Business Owners
Major Tax Changes Looming as Tax Cuts and Jobs Act Provisions Set to Sunset
As the sunset of many provisions of the Tax Cuts and Jobs Act (TCJA) approaches, individuals and business owners are bracing for major tax changes that could impact their bottom line. Expected changes include increased individual tax rates, the loss of the QBI deduction for business owners, and changes to several itemized deductions. It remains to be seen how the sunset will affect those who have given away more than the $5.49 million lifetime exclusion amount related to estate and gift taxes.
The TCJA, which went into effect in 2018, brought significant tax cuts for businesses and individuals. However, built into the law was the sunset of certain key provisions on December 31, 2025. This means that on January 1, 2026, tax law will revert to pre-2018 levels unless Congress acts to prevent it.
One of the most significant changes set to occur is the increase in individual tax rates. The TCJA reduced tax rates for individuals, but these rates are set to revert to pre-2018 levels after the sunset. This means that individuals could see an increase in their tax bills starting in 2026.
Business owners are also facing the loss of the qualified business income (QBI) deduction after 2025. This deduction has been a significant benefit for pass-through business owners, effectively reducing their income tax rates. With the sunset of this provision, business owners will need to consider strategies to mitigate the impact of higher tax rates on their business income.
Additionally, changes to itemized deductions are on the horizon. The TCJA made significant changes to itemized deductions, including the standard deduction, state and local tax (SALT) deduction, mortgage interest deduction, and charitable contribution deduction. These changes will revert to pre-2018 levels after the sunset, potentially impacting taxpayers who have relied on these deductions in the past.
While some provisions of the TCJA will not sunset, including the excess business loss limitation for individuals and the net operating loss limitation, many business owners and individuals will need to start planning now to prepare for the upcoming changes. Consulting with a CPA and exploring tax planning strategies can help mitigate the impact of the sunset provisions on your tax liability.
As the sunset of the TCJA approaches, it’s essential for individuals and business owners to be proactive in their tax planning. Contact us to learn more about how these upcoming changes could affect you and how you can prepare for the future.