TCJA Sunset: What You Need to Know About Tax Impacts

The Tax Cuts and Jobs Act (TCJA) was a significant overhaul of the US tax code, but it's not a permanent change. As of 2025, many of its provisions will sunset, meaning they'll expire or revert to their pre-TCJA state.

The TCJA's individual tax provisions, including the doubled standard deduction, will end in 2025. This change will affect millions of taxpayers who have grown accustomed to these lower tax rates and deductions.

One key impact of the TCJA sunset is the return of the Alternative Minimum Tax (AMT) exemption phase-out. In 2025, the AMT exemption will begin to phase out for taxpayers with income above $1 million, and by 2026, it will be fully repealed.

Taxpayers who have taken advantage of the TCJA's expanded 20% qualified business income (QBI) deduction will also see its benefits disappear in 2025.

The 20% deduction for qualified business income from pass-through entities will end, affecting construction business owners who have benefited from this deduction since 2018. This has allowed them to invest more back into the company and pursue larger bids.

Business owners may want to consider whether it makes sense to accelerate income while tax rates are lower compared to other options. They might consult with their leadership team and financial advisors to evaluate whether remaining a pass-through entity is still beneficial or if converting to a C corporation could be more advantageous.

The limitation on interest deductibility to 30% of adjusted taxable income will also end, potentially allowing companies to fully deduct interest payments on their debt.

The lifetime estate and gift exclusion is set to take a big hit in 2026. The limit will drop from roughly $13.61 million per taxpayer to around $7 million.

This change will affect many construction business owners who are planning for the future of their company. They'll need to look at succession planning now to avoid a large estate tax bill.

The current limit allows for some flexibility, but it's essential to take advantage of it before it's too late. The next 12 months will be crucial for making plans that work.

Construction business owners should consider gifting individually or using trusts like Spousal Lifetime Access Trust or Dynasty to secure the future of their company.

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The 20% deduction for qualified business income from passthrough entities is ending. This change will likely impact many construction business owners who have taken advantage of this deduction since 2018.

Business owners who have been benefiting from this deduction may need to reassess their tax strategy. This could involve consulting with their leadership team and financial advisors to evaluate whether remaining a passthrough entity is still the best option.

The deduction has allowed owners to invest more back into their company and pursue larger bid pools. This is especially true for construction businesses that have been operating as pass-through entities.

Business owners may want to consider accelerating income while tax rates are lower compared to other tax planning options. This could be a smart move, especially if converting to C corporation status is more beneficial.

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The limitation on interest deductibility to 30% of adjusted taxable income will end, potentially allowing companies to fully deduct interest payments on their debt.

This could lead to a significant increase in the ability to deduct more interest expense annually. Companies may now be able to deduct interest payments more readily through their profit and loss.

With interest rates likely on the way down, borrowing to invest in equipment, fleet, and technology may become a more attractive option for companies. This shift could result in a more investor-driven capital stack, potentially altering ownership dynamics.

The tax impacts of the TCJA sunset are significant. The standard deduction for joint filers will drop to $16,700 from $30,000, affecting more filers who will need to itemize deductions.

Taxpayers who are charitably inclined may consider deferring charitable contributions until 2026, when these deductions may become more beneficial. This is because the top marginal tax rate is scheduled to increase to 39.6% from the current 37%.

The tax rates affected by the TCJA sunset are substantial, with an average 3% decrease in rates across brackets. Here's a comparison of 2024 tax rates under TCJA and what the inflation-indexed amounts will be if the act is allowed to expire:

The loss of the qualified business income deduction will have a significant impact on agriculture, with producers facing a tax increase of up to 10% on their final crop and equipment sale.

The Tax Cuts and Jobs Act (TCJA) brought about a significant decrease in tax rates for all taxpayers, with an average reduction of 3% across brackets.

The TCJA widened the brackets at strategic spots, resulting in a more progressive tax system.

The tax rates under TCJA are compared to the estimated post-TCJA rates in the chart below:

The TCJA resulted in an increase in comparative rates averaging approximately 3% outside of the 10% bracket. This change affects a significant portion of taxpayers.

The loss of the qualified business income deduction (QBID) is a significant concern for many producers. This deduction allowed them to reduce their taxable income by up to 20%.

Agriculture has seen several wonderful income years since 2018, and producers, cooperatives, and ag retailers and elevators have benefited immensely from this deduction. Without it, they're looking at a very unexpected tax increase.

Income in the 24% bracket with QBID is actually only taxed at an effective rate of 19.2%. This is a significant reduction in tax liability.

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The increase in rates is worse at the higher brackets. For instance, 35% income with the combination is really only taxed at 28%. This means producers are facing a substantial increase in tax rates.

Someone on the highest bracket will pay 39.6% on their final crop and equipment sale without TCJA. This is a 10% increase in tax solely because of the loss of QBID.

As you prepare for the TCJA sunset, consider that 2025 tax rates are likely to be higher than they are today. The current year has been challenging, especially for row crop and livestock producers, and many producers may see the silver lining as not having to pay income tax this year.

This year's tax situation can be leveraged to get a producer to a more favorable position. For instance, grain sales can be managed to allow for one more year of qualified business income and cheaper taxes overall.

It's essential to be vocal about the importance of the QBI deduction, which is crucial for ag producers. This can be achieved by reaching out to trade associations, local farm bureaus, or cooperatives to make it known that this deduction is vital for the industry.

Joining a webinar to identify key provisions of the TCJA scheduled to sunset can also help you plan for the future.

The Tax Cuts and Jobs Act (TCJA) sunset is likely to spur Congress to act, as we've seen many times in the past.

The TCJA sunset signifies a significant turning point for the income tax code, and it's essential to understand the challenges and economic impact it will bring.

Sunset is expected to affect many taxpayers, and it's crucial to be prepared for the changes that will come.

The webcast will focus on these challenges and economic impact, so we can better navigate the changing tax landscape.

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As a result of the TCJA sunset, Congress may be forced to revisit and revise the tax code, which could lead to new tax laws and regulations.

This could create uncertainty for taxpayers and businesses, making it challenging to plan for the future.

The TCJA sunset is a significant event that will have far-reaching consequences for the income tax code and the economy as a whole.

As we head into the sunset of the Tax Cuts and Jobs Act (TCJA), it's essential to focus on planning for individual clients. The TCJA is set to expire at the end of 2025, which means we need to start thinking about tax planning strategies to guide our clients through this transition.

Planning for individual clients as we head into the sunset of TCJA will require us to be proactive and strategic. We need to consider the potential impact of the TCJA's expiration on our clients' tax situations.

Here are some key tax planning ideas to consider: