Picture a perfect sunset at the beach – the sun dipping below the horizon, painting the sky in stunning hues of orange, pink, and red. It’s a scene that evokes feelings of peace, relaxation, and happiness. But one sunset on the horizon might not be so pleasant: the 2025 Tax Sunset.
The 2017 Tax Cuts and Jobs Act (TCJA) brought some changes that won’t stick around forever—in fact, they’re set to expire in 2025. This could mean big shifts in taxes for everyone, from individuals to businesses.
My firm is here to support our clients by providing the information they need to prepare for these changes and plan their finances wisely.
Here’s what you can expect from the 2025 Tax Sunset, including the changes that are ending and what it might mean for you and your financial plan.
Individual Taxes
Let’s start with an explanation of how the 2025 Tax Sunset could affect individual taxpayers.
- Lower income tax brackets: The lower tax brackets that were put in place by the Tax Cuts and Jobs Act (TCJA) will revert to pre-2017 levels. This means that millions of taxpayers could potentially be pushed into higher tax brackets.
- Decreased standard deductions and personal exemption: By decreasing both standard deduction amounts and personal exemptions, the 2025 Tax Sunset could cause higher taxable income for individual filers.
- Child tax credit: Currently, the child tax credit provides a dollar-for-dollar reduction of your tax liability for each qualifying child; this allowance would expire under current regulation.
- 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 could benefit. The downside is that eliminating the deduction cap could potentially shift the tax burden back to the federal government.
Business Taxes
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 would expire. For affected businesses, the result would be increased taxable income.
- Pass-through business income deductions: This tax provision allows the deduction for income from pass-through businesses like partnerships, S corporations, and sole proprietorships, where business income is taxed at the individual level. When this law expires, the tax liability for many small businesses could increase.
- Bonus depreciation: Businesses that invest in equipment and machinery will be impacted when this deduction for specific depreciable property disappears.
Uncertainty
Ultimately, the consequences of the 2025 Tax Sunset are unsettled. There’s a possibility that Congress will extend or alter these tax laws before the end of 2025, but if that doesn’t happen, the above changes can take place.
If the 2025 Tax Sunset occurs without intervention from the government, the effects on individuals and businesses will vary contingent upon their unique situations. Some taxpayers would experience an increased tax liability, while others could potentially benefit from changes like the SALT deduction cap removal. Conversely, some businesses could face a higher tax bill if temporary deductions expire.
Prepare Today
Getting your finances ready for the 2025 Tax Sunset is easier with help from an experienced financial professional. At Tapparo Capital Management, we examine your tax records, spending, and how your investments affect your taxes now and later. We can team up with your tax advisor so you can feel confident your financial plan is all set and optimized for the changes ahead.
If you’re ready to get your finances in line with the 2025 Tax Sunset, schedule a “Get Acquainted Call” to see if we are a good fit for each other. Call 978-887-1121 or email andrew@tapparocapital.com and let’s prepare for your future, today.
About Andy
Andrew Tapparo is a fee-only financial advisor at Tapparo Capital Management, a financial planning firm in Topsfield, MA, helping clients turn their savings into a retirement income that lasts. Inspired by the quote “Choose a job you love, and you will never work a day in your life,” Andy founded Tapparo Capital Management in 1997 with a passion for helping clients enjoy a truly worry-free and fulfilling retirement and experience financial freedom. As a Retirement Income Certified Professional (RICP®), he designs retirement strategies along with sound money management to help clients retire with confidence.
Andy holds a Bachelor of Science in Industrial Engineering from Rochester Institute of Technology in Rochester, New York, and a Master of Science in Finance from Bentley University in Waltham, Massachusetts. Specializing in retirement income planning, Andy completed a comprehensive financial industry education program at The American College of Financial Services and was awarded the Retirement Income Certified Professional® designation. He is frequently quoted in the media as a financial expert.
Andy and his wife, Susan, live in Topsfield, Massachusetts, and have two beautiful daughters. Outside of work, he is an automobile enthusiast, enjoys taking road trips, and loves the Outer Banks of North Carolina. In his spare time, he volunteers with the local high school varsity girl’s basketball team as the team statistician and runs the team’s website. He is passionate about supporting charities that serve our veterans and their families. To learn more about Andy, connect with him on LinkedIn.