The Tax Cuts and Jobs Act (TCJA) of 2017 introduced some of the most transformative updates to the U.S. tax code in recent memory. Designed to stimulate economic growth and provide tax relief for businesses and individuals, the TCJA made sweeping changes that significantly impacted high-net-worth investors. However, these changes were not permanent, and several key provisions are set to sunset by the end of 2025.
For investors, the 2025 tax law changes and the expiration of the TCJA provisions represent a rare opportunity to prepare with clarity and foresight. These upcoming changes, often referred to as 2025 tax changes, are not just speculative—they’re on the horizon. High-net-worth individuals need to evaluate their financial plans now to safeguard their wealth and adapt their strategies accordingly.
Let’s dive into what the expiration of the TCJA could mean, the specific provisions at stake, and how proactive financial planning can help you navigate these changes effectively.
What Is the TCJA, and Why Is It Important?
Signed into law in December 2017, the TCJA aimed to enhance economic growth by reducing the tax burden on individuals and businesses. While the benefits were widespread, high-net-worth individuals reaped specific advantages. Here are the TCJA’s most notable provisions:
- Reduction in Individual Tax Rates: Tax rates across various income brackets were lowered, decreasing overall tax liability for many Americans.
- Increased Estate Tax Exemption: The estate tax exemption was doubled, allowing individuals to shield a greater portion of their wealth from federal estate taxes.
- State and Local Tax (SALT) Deduction Cap: A $10,000 cap was imposed on the deduction for state and local taxes, disproportionately impacting taxpayers in high-tax states.
- Alternative Minimum Tax (AMT) Changes: Exemption levels were raised, and phase-out thresholds increased, reducing the number of taxpayers subject to AMT.
- Qualified Business Income (QBI) Deduction: Certain pass-through businesses gained the ability to deduct up to 20% of their qualified business income, offering a substantial tax advantage to entrepreneurs and small business owners.
What Key TCJA Provisions Are Set to Expire?
As the 2025 sunset date for many provisions of the TCJA approaches, it’s essential to understand which expiring provisions could have the most significant impact on individuals and businesses, particularly high-net-worth investors. These provisions span personal income taxes, estate taxes, business deductions, and more. Below are the most critical changes to watch closely and how they could affect your financial planning.
1. Individual Income Tax Rates
One of the most impactful provisions set to expire is the reduced individual income tax rates introduced by the TCJA. These reductions spanned all income brackets, providing tax savings for millions of Americans. Unless Congress acts, tax brackets will revert to pre-2018 levels, meaning:
- The top marginal tax rate will increase from 37% to 39.6%.
- Other brackets will see increases of 1-4 percentage points, depending on income level.
For high-income earners, this change could significantly increase overall tax liabilities, reducing after-tax income and potentially impacting lifestyle and investment strategies.
2. Estate and Gift Tax Exemption
The TCJA doubled the federal estate and gift tax exemption, which currently allows individuals to pass up to $12.92 million (or $25.84 million for married couples) to heirs without incurring federal estate taxes. After 2025, this exemption is set to drop back to approximately $6 million per individual (adjusted for inflation).
For wealthy families, this represents a critical shift. The reduced exemption could expose a larger portion of an estate to federal estate taxes, which are currently assessed at a steep rate of 40%. High-net-worth individuals may need to act now to leverage the current exemption before it reverts. Options include:
- Making large gifts to heirs or trusts while the exemption remains at its elevated level.
- Establishing irrevocable trusts to remove assets from taxable estates.
3. State and Local Tax (SALT) Deduction Cap
The $10,000 cap on state and local tax (SALT) deductions has been one of the most controversial aspects of the TCJA. This cap, which limits the amount taxpayers can deduct for property, income, and sales taxes paid to state and local governments, disproportionately affects taxpayers in high-tax states such as New York, California, and New Jersey.
While the cap has been in place since 2018, its expiration could bring some relief to those heavily impacted. However, given the contentious nature of this provision, it’s possible Congress could seek to extend or modify the cap rather than allowing it to expire completely. Taxpayers should monitor developments closely and explore strategies like charitable giving to offset SALT-related tax burdens.
4. Qualified Business Income (QBI) Deduction
Another significant expiring provision is the Qualified Business Income (QBI) deduction, which allows eligible owners of pass-through entities (e.g., sole proprietorships, partnerships, S corporations) to deduct up to 20% of their qualified business income.
This deduction has been a boon for small business owners, significantly reducing taxable income and freeing up capital for reinvestment. Its expiration will likely result in higher taxable income for many business owners, prompting them to reassess their business structures or explore other tax-efficient strategies.
5. Expanded Child Tax Credit
The TCJA increased the child tax credit from $1,000 to $2,000 per qualifying child and expanded eligibility by raising income phase-out thresholds. This change provided meaningful relief for families, particularly those with moderate to high incomes.
When this provision expires, the child tax credit will revert to its pre-2018 amount, offering less financial support for families and potentially increasing their overall tax burden.
6. Standard Deduction Increase
The TCJA nearly doubled the standard deduction, simplifying tax filing for many and reducing taxable income for those who do not itemize deductions. In 2024, the standard deduction is $13,850 for single filers and $27,700 for married couples filing jointly. After 2025, the standard deduction will decrease, potentially increasing the taxable income of millions of households.
What Does This Mean for Taxpayers?
The expiration of these provisions underscores the importance of proactive financial planning. High-net-worth individuals, business owners, and families need to assess how these changes will impact their personal and professional finances. Whether it’s locking in current estate tax exemptions, exploring Roth IRA conversions, or revisiting business structures, acting now can help mitigate the effects of these significant shifts.
By staying informed and partnering with experienced financial and tax professionals, you can adapt to the evolving tax landscape and continue to make strategic decisions that align with your long-term goals.
How Did the TCJA Affect High-Net-Worth Investors?
For high-net-worth individuals, the TCJA ushered in a favorable tax environment, including lower income tax rates, expanded estate planning opportunities, and business deductions. However, the expiration of these provisions in 2025 introduces significant uncertainties, including:
What Will Happen When Tax Rates Revert?
If Congress does not extend or amend the TCJA provisions, tax rates will revert to pre-2018 levels. For high-net-worth investors, this could result in:
- Higher Marginal Tax Rates: Increased tax liabilities could reduce after-tax returns on investments.
- Potential Reallocation of Assets: Investors may need to adjust asset allocations or explore tax-advantaged strategies to minimize tax burdens.
What Estate Planning Strategies Should You Consider?
The TCJA’s doubling of the estate tax exemption enabled wealthy individuals to transfer substantial wealth to heirs without incurring estate taxes. For 2024, the exemption is $12.92 million per individual. Without intervention, this figure will drop to pre-2018 levels, estimated to be around $6 million in 2026. Key considerations:
- Review Your Estate Plan: High-net-worth individuals should revisit estate planning strategies to ensure they align with the reduced exemption.
- Leverage Current Opportunities: Gifting strategies, such as lifetime exemptions, can maximize tax efficiencies before the changes take effect.
How Does the SALT Deduction Cap Impact You?
The $10,000 SALT deduction cap remains a significant concern for taxpayers in high-tax states like New York, California, and New Jersey. For those with substantial income and property taxes, this cap limits the ability to offset federal tax liabilities. How to address this:
- Consider Relocation: Moving to a lower-tax state may provide significant tax savings.
- Maximize Charitable Contributions: Donating to qualified charities can offset some of the tax burdens created by the SALT cap.
What Should Business Owners Know About the Qualified Business Income (QBI) Deduction?
The QBI deduction provided a substantial benefit to pass-through businesses, allowing eligible business owners to deduct up to 20% of their qualified business income. This deduction is set to expire in 2025 unless extended by Congress. Action items for business owners:
- Explore Entity Restructuring: Changing your business structure may yield ongoing tax benefits.
- Evaluate Deferred Income Opportunities: Timing income recognition could help reduce taxable income during higher-tax years.
How Can You Prepare for 2025 Tax Law Changes?
While some aspects of the 2025 tax changes are still uncertain, the looming sunset of the TCJA offers a clear timeline for action. Here’s how you can prepare:
1. Work with Tax and Financial Professionals
Navigating the complexities of tax law changes requires a team of experts. Financial planners and tax advisors can work together to:
- Model potential scenarios based on your income, assets, and liabilities.
- Recommend actionable strategies to minimize your tax burden.
- Identify opportunities to maximize benefits before the TCJA provisions expire.
2. Stay Informed
Tax laws are subject to political negotiation, and it’s essential to stay updated on potential legislative changes. By monitoring developments, you can adapt your strategies in real time.
3. Consider Roth Conversions
With individual tax rates potentially rising, converting traditional IRA funds into Roth IRAs may be advantageous. This strategy locks in current tax rates and allows for tax-free withdrawals in retirement.
4. Maximize Gifting Strategies
High-net-worth individuals should consider using their remaining estate tax exemption before it decreases. Gifting assets to heirs or establishing trusts can help minimize estate taxes and preserve generational wealth.
Where Can You Find Additional Resources?
To help you navigate these 2025 tax changes, we’ve created two free guides:
- What Issues Should I Consider Before and After the TCJA Sunset Provision Occurs?
- TCJA Sunset Provision Comparison Guide
These resources provide actionable insights and practical steps to prepare for the sunset of the TCJA provisions.
Who Can Help You Navigate the 2025 Tax Law Changes?
As the 2025 tax changes approach, understanding the expiration of the TCJA provisions is crucial for high-net-worth individuals seeking to preserve their wealth and adapt their financial strategies. At R.W. Rogé & Company, Inc., our team of CERTIFIED FINANCIAL PLANNERTM (CFP®) professionals is here to help you navigate these complexities with confidence.
If you have questions regarding The Tax Cuts and Jobs Act (TCJA) of 2017, or if you would like to speak with our team of CERTIFIED FINANCIAL PLANNERTM (CFP®) professionals, we would be happy to show you how our financial planning process can help you stay on track and achieve your financial goals. Please contact us for a complimentary discovery call at 631.218.0077. You can also send us a message directly.
R.W. Rogé & Company, Inc. is an independent, fee-only financial planning and investment management firm serving clients locally and virtually across the country, with Long Island, New York, and Beverly, Massachusetts office locations. R.W. Rogé & Company, Inc. was founded on a “client first” culture and proudly commits to acting in your best interest as a fiduciary. We have helped clients Plan, Achieve, and Live® the life they want since 1986. To learn more about how we do this, as well as our process, explore our detailed overview of services and approach.
