As the new Trump administration and a new Congress get underway, taxpayers and investors find themselves in a landscape marked by uncertainty. The potential expiration of key provisions from the Tax Cuts and Jobs Act (TCJA) at the end of 2025 adds another layer of complexity to financial planning. While the new administration is more likely to extend at least some of the TCJA provisions, until we see a final bill, it’s important to understand the upcoming changes and how they might impact you.
The TCJA was enacted in 2017 and introduced significant changes to the U.S. tax code, affecting both individual and corporate tax structures. While some provisions were made permanent, many are set to expire at the end of 2025. A year from now, many taxpayers may be surprised by a larger tax bill. But there are proactive strategies that can help mitigate some of the impacts.
1. Estate and gift taxes
For high-net-worth individuals, the TCJA’s increases in the estate tax and gift tax exemption limits were among the most impactful changes. In 2025, the lifetime exemption is $13.99 million per person or $27.98 million for a married couple. This amount is set to revert to its pre-TCJA level at about $7.25 million per individual, or $14.5 million for a married couple, on January 1, 2026.
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Those with taxable estates above the current exemption may want to explore strategies to transfer wealth before the end of 2025. Some of these strategies include:
- Outright gifts are a straightforward way to transfer wealth. In 2025, the annual exclusion amount for gifts is $19,000 per person ($38,000 for a married couple), which can be gifted without affecting your lifetime exemption. However, outright gifts are not protected from a beneficiary’s creditors, including potential future ex-spouses.
- Dynasty trusts are designed to preserve wealth across multiple generations. These irrevocable trusts can last for many years, depending on state laws, and allow assets to grow free of estate and generation-skipping transfer taxes. By placing assets in a dynasty trust, individuals can provide for their descendants in a tax-efficient manner. If you have the wherewithal, gifts up to the lifetime exemption can be an effective way to provide for descendants and take advantage of the current exemption amount.
- Spousal lifetime access trusts (SLATs) are irrevocable trusts that allow one spouse to make a gift that can benefit the other spouse during their lifetime, while keeping the assets out of the grantor’s taxable estate. If the beneficiary spouse avoids requesting distributions, the trust’s assets may grow and ultimately pass on to non-spousal beneficiaries, such as children or grandchildren. A SLAT can be useful for people who want to take advantage of the current exemption amounts but are concerned that they might someday need to use some of those resources themselves. It’s important to consider potential risks, like the impact of the beneficiary spouse’s death or a divorce, which could affect the donor spouse’s access to the trust assets.
2. Income tax changes
The TCJA reduced individual tax rates across several income brackets, including a decrease in the top marginal rate from 39.6% to 37%. In addition to rate changes, the TCJA nearly doubled the standard deduction. These rates are set to revert to pre-TCJA levels in 2026, potentially increasing federal income tax liabilities for higher-income taxpayers.
If this applies to you, you may want to consider these income tax strategies:
- Roth IRA conversions. Converting some assets in your traditional IRA into a Roth IRA could be a strategic move. While you pay income taxes on the conversion amount at the time of conversion, your asset growth in a Roth IRA and eventual withdrawals are tax-free. This approach can be advantageous if you expect to stay in the highest tax bracket during retirement. It can also be beneficial for estate planning. Beneficiaries can inherit your Roth IRA and make tax-free withdrawals, based on specific distribution rules, over a period of time.
- Accelerate ordinary income. If possible, you may want to consider accelerating any deferred ordinary income or bonus payments in 2025 to take advantage of the lower tax rates. Consult your tax adviser to determine whether this would make sense for your situation.
3. State and local taxes, deductions and credits
The TCJA implemented significant changes to itemized deductions. Once these limitations sunset, itemizing may become more attractive for high-income taxpayers.
The TCJA placed a $10,000 cap on state and local tax (SALT) deductions. If this expires, taxpayers may once again fully deduct all of these taxes, potentially lowering their overall tax liability. The TCJA also reduced the mortgage interest deduction and temporarily eliminated the home equity interest deduction and the moving expense deduction for most taxpayers.
Other changes to individual tax structures include:
- The limit on charitable deductions, which was increased to 60% of adjusted gross income (AGI) under the TCJA for cash gifts to public charities, would revert to 50% of AGI.
- Personal exemptions, which were eliminated under the TCJA, would return but phase out at higher income levels.
- The reversion of the child tax credit to pre-TCJA levels: $2,000 would revert back to $1,000 per qualifying child.
It’s important to assess how these changes could affect you. Consult with your financial and tax advisers to review your specific situation.
4. Alternative minimum tax (AMT)
The alternative minimum tax (AMT) is a parallel tax system designed to ensure that high-income earners pay a minimum level of tax by limiting certain deductions and credits. The TCJA significantly reduced the AMT’s impact and raised the AMT exemption income threshold. An estimated 7.6 million taxpayers will be impacted by the AMT if these provisions sunset, according to the Tax Policy Center.
One strategy to consider is exercising incentive stock options (ISOs) before the end of 2025. The difference between the exercise price and the fair market value is considered a preference item for AMT purposes. This amount is added to your AMT income and could increase your AMT liability even if you do not sell your shares. By exercising ISOs now, taxpayers may avoid higher AMT liabilities in the future.
The impending sunset of the TCJA provisions presents both challenges and opportunities. By understanding the potential impacts, consulting with financial and tax advisers and exploring proactive strategies, you can better position yourself to navigate uncertainty and manage changes that may arise.
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