Time Is Running Out: The 2025 Tax Sunset Is On The Horizon

This article was published in the April 2024 issue of the Traverse City Business News and can be read in its entirety below. Black Walnut Wealth Management contributes articles and is featured in various media outlets.

The 2025 Tax Sunset is on the horizon and may affect taxpayers across the board. With many 2017 Tax Cuts and Jobs Act (TCJA) provisions set to expire, it could mean significant tax shifts for individuals and businesses alike.

Let’s face it, most folks don’t stay on top of tax law, typically leaving that sort of thing to their tax professional. But with several laws expiring shortly, now is the time to prepare for substantial changes that could impact you for years to come.

Here’s a breakdown of what to expect from the 2025 Tax Sunset – including which laws are expiring and the possible ramifications – so you can act now and potentially save before tax rates increase.

Individual Taxes

Let’s start by explaining how the 2025 Tax Sunset could affect individual taxpayers and how the temptation to simply wait it out might end up costing you down the road.

Potential Changes

Tax Rate Increase: Millions of taxpayers could pay more in taxes as the current lower tax brackets put in place by the Tax Cuts and Jobs Act (TCJA) increase in 2026.
Decreased standard deductions and personal exemption: Prepare for a potential surge in taxable income when the standard deduction amounts and personal exemptions decrease.
Child tax credit: Right now, families get a break on taxable income thanks to the child tax credit, but this allowance is set to expire. You’ll want to act now to manage potential increases in income.
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 shift the tax burden to the federal government.

Estate Tax

With the increased value of homes, inheritances, and sales of business in the last few years, the estate and gift taxes are a top concern for individuals with larger estates. Here’s why:

Estate tax exemptions expected to be reduced by half: The TCJA doubled the 2011 estate gift tax exemptions. The exemption rates for 2024 are $13.61 million per person and $27.22 million per married couple. In 2026, the estate gift exemption is expected to roll back to the 2011 numbers and be around $6.8 million per person and $14 million for a married couple.

Business Taxes

As a business owner, you may have even more at stake. 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 will expire. If you’re an affected business, you will see taxes increase.
Pass-through business income deductions: When the provision that currently allows the deduction for income from pass-through businesses like partnerships and S corporations expires, the tax liability for many small businesses could increase.
Bonus depreciation: Businesses investing in equipment and machinery will feel the impact as the deduction for certain depreciable property shrinks. The bonus percentage will drop by 20% in each upcoming year until it vanishes completely, so it’s crucial to plan for these changes.

Get Prepared

If the 2025 Tax Sunset remains in place without congressional intervention to alter or extend, the effects on individuals and businesses will be far reaching. Rather than wait to see how it plays out, assess your situation now to take advantage of the current lower tax rates. Whether you are an individual tax filer or a business, the TCJA will likely impact you, so it’s best to prepare while there’s still time. A great way to get ahead of these changes is to consult with a Certified Financial Planner® professional or a tax professional.

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