The Clock Is Ticking: What the 2025 Tax Sunset Means for You
As we reach the midpoint of 2025, a major shift in U.S. tax law may be on the horizon. Many of the tax provisions introduced under the Tax Cuts and Jobs Act (TCJA) of 2017 are set to expire at the end of this year—unless Congress acts to extend or modify them.
If no action is taken, individual tax rates, estate and gift tax exemptions, business deductions, and more will revert to pre-2018 levels. These changes could significantly impact your income, estate plans, and overall financial picture, especially if you’re in a high-tax state like California or own a business in a growing economic landscape like Utah’s.
What’s Set to Change in 2026?
1. Individual Income Tax Rates
The TCJA lowered federal income tax rates, but those cuts will vanish after December 31, 2025, without congressional action. The Tax Foundation shares how these brackets will change if the rules expire:
Source: Erica York, “How 2026 Tax Brackets Would Change If the TCJA Expires,” Tax Foundation, 24 October 2024.
If your household income places you in or near these brackets, your tax bill could grow noticeably in 2026.
2. Standard Deduction, Personal Exemption
The standard deduction is set to shrink, while personal exemptions—which were eliminated under the TCJA—are expected to return.
For instance, the standard deduction for the 2024 tax year is $14,600 for individuals and $29,200 for married couples filing jointly. If the TCJA expires, the Tax Foundation reports the standard deduction would shrink to $8,350 for single filers and $16,700 for joint filers. The personal exemption would return, at about $5,300.
Whether these changes increase or decrease your taxable income depends on your household size. Smaller households may lose more from the reduced standard deduction than they gain from the restored exemptions, while larger families may benefit more from the exemptions.
3. Estate and Gift Tax Exemption
The Tax Cuts and Jobs Act doubled the federal estate and gift tax exemption. If the law sunsets, the current estate and gift tax exemption of $13.99 million per person (or $27.98 million for married couples) is expected to drop to about $7 million per person in 2026.
If you are considering generational wealth transfer, the clock is ticking to take advantage of today’s elevated limits.
4. QBI Deduction for Business Owners
Small business owners—especially those operating pass-through entities like LLCs or S-Corps—have benefited from a 20% qualified business income (QBI) deduction. This key tax break is also on the chopping block, absent an extension.
5. State and Local Tax (SALT) Deduction Cap
Also potentially expiring is the controversial $10,000 cap on state and local tax (SALT) deductions. This expiration would be a welcome change for high-tax regions like California, where property and income taxes often exceed that threshold. However, Congress could choose to extend or modify this cap.
6. Child Tax Credit
Families will see the Child Tax Credit drop from $2,000 per child to $1,000 unless Congress intervenes. This cut could affect financial planning for parents with young children or dependents.
Mid-Year Action Plan: What You Can Do Now
With just over six months before these changes take effect, now is the time to assess your tax strategy. Smart planning steps to consider include:
Accelerating income into 2025 if you expect to be in a higher tax bracket in 2026.
Utilizing the elevated estate exemption by making gifts or transfers now.
Completing Roth IRA conversions while tax rates remain historically low.
Maximizing the QBI deduction and assessing business entity structure.
Reviewing itemized deductions if you anticipate changes in the SALT cap.
Planning charitable giving strategically, especially in high-income years.
Start Planning Now
Working with a fiduciary financial advisor and an experienced tax professional can help you build a tailored plan that maximizes today’s laws and prepares for potential changes. The earlier you begin, the more flexibility and control you’ll have.
Schedule a complimentary, 15-minute chat with a fee-only, fiduciary financial advisor today to discuss your personal situation.
This material was written in collaboration with artificial intelligence (ChatGPT) derived from sources believed to be accurate. This information should not be construed as investment, tax, or legal advice.
Parkshore Wealth Management is a family-owned, independent, fee-only Registered Investment Advisor with offices in Granite Bay and Folsom, CA, and Lehi and Logan, UT. We partner with financially responsible individuals and families who are eager to take positive steps that will allow them to use their money to build the life they desire. The firm is led by Harold Anderson, CFP®, and Daniel Andersen, CFP®, both members of NAPFA, the country’s leading professional association of fee-only financial advisors.