With Republicans in control, most people assumed that many of the temporary provisions of the Tax Cuts and Jobs Act of 2017 (TCJA) would be made permanent in some fashion. However, congressional discussions have revealed more disunity than expected. The House only passed a spending bill proposal in early April. Many Republican politicians have intimated that their goal is to maintain most or all of the set-to-expire TCJA provisions and even add some expansions. However, despite extensive deliberations, we are closing in on the halfway point of the year with no certain bill yet in sight.
With less than a year to go before the scheduled sunset, you may be wondering how to best help your clients prepare. The following questions and answers should help.
What type of messaging is best?
In a time of general economic uncertainty, clients long for certainty. With nothing concrete to share yet, you’ll have to focus on the most likely scenario, emphasizing that things may change once Congress passes permanent legislation. It will be important to keep up with developments over the next weeks and months.
Which provisions are most likely to stay?
Right now, the provisions most likely to remain at the end of 2025 include:
• The increased standard deduction. For many taxpayers, taking the higher standard deduction has become the preferred alternative to the hassle of itemizing.
• The doubled estate tax exemption amount. The Trump administration has proposed either keeping the higher exemption amount or eliminating the estate tax entirely, but keeping the increased exemption is the more likely scenario.
• The individual and corporate income tax rates. Both the Trump administration and Congress have focused heavily on lowering taxes, making these lower rates likely to remain in place.
•The expanded child tax credit. The Trump administration has openly discussed ways to encourage growth in American families, making the expanded child tax credit extremely likely to continue—or even be expanded further.
Are some provisions likely to change or expire?
The $10,000 cap on state and local tax (SALT) deductions remains one of the most contentious provisions under debate. While some Republicans want to keep the cap or only modestly raise it, others—particularly those from states with higher state taxes—are pushing hard to increase it significantly or eliminate it altogether. With no clear consensus and negotiations still underway, the most likely outcome is that the SALT cap will change in some way, either by increasing for middle-income earners or phasing out entirely if the Trump-era tax cuts expire.
Is it safe to assume that campaign talking point items will be prioritized?
Yes—but only to a certain extent. As with any political campaign, some of the ideas discussed by legislators or President Trump will not work out the way people might have thought or hoped. For example, during the campaign, Trump promised to make tips, overtime pay, and Social Security benefits exempt from income tax (the last of which would surely be appreciated by retirees who received increased benefits thanks to the recent Social Security Fairness Act). While none of these are impossible, there may not be enough votes to add items that will increase the already significant deficit.
How can I best align my focus with these potential legislative outcomes?
The TCJA sunset has cast a shadow over financial planning for the last several years. While we don’t have certainty yet, it does seem likely that many (or most) core provisions will continue or even see expansion. Proactive planning is essential for your clients—and soon—but it appears we’ll need to wait longer to get a glimpse of what the new tax bill will include. Until then, you can begin the discussion with clients (if you haven’t already) about how they might approach various scenarios.
1. Review the potential for an estate tax impact. While it seems likely that the estate tax exemption amount will not be cut in half, clients with larger estates may still want to consider options to mitigate any potential estate tax liability.
• An irrevocable life insurance trust (ILIT) can effectively address immediate estate liquidity requirements at death, provide important financial support for heirs, and keep life insurance proceeds outside of the estate and not subject to the estate tax.
• A bypass trust may help some married couples with large estates shelter additional assets from the estate tax at the death of the second spouse.
• Gifts to heirs or charitable organizations can also serve as part of an effective estate reduction strategy. Individuals can give up to $19,000 this year ($38,000 with gift splitting) to any number of donees without incurring the federal gift tax, and the IRS has stated that for large, lifetime gifts made now, it will not “claw back” taxes if the exemption amount is reduced. Charitable gifts also reduce the size of the estate and generally come with useful tax or planning benefits.
2. Consider how possible tax changes impact planning. Despite the uncertainty, it’s a good time to consider future scenarios. If the tax brackets remain at their lower TCJA levels, clients planning more complicated income recognition plans to ease next year’s tax burden will be relieved. On the flip side, clients in higher tax states might be very interested in an increased SALT deduction cap and might benefit from planning to take deductions this year instead of next.
In this changing legislative landscape, staying informed is the best way to guide and calm clients concerned about economic uncertainty.
Reach out to request a copy of our white paper, The Sunset of the Tax Cuts and Jobs Act: A Review of Scheduled Changes, or to ask about client-facing sunset materials.
