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The Tax Savings Party Ends in 2025

Let’s hope you have been dancing the night away, because since 2018, American taxpayers have been enjoying lower income taxes and trillions in tax breaks thanks to the Tax Cuts and Jobs Act (TCJA). But like all great parties, this one is coming to an end. Unless Congress intervenes, the vast majority of Americans will face higher, more complicated taxes starting in 2026, as the major provisions of the TCJA are set to expire on December 31, 2025.

But don’t just sit idly by as the music fades. It’s time to bust out your tax-savvy dance moves and prepare for the impending changes to avoid any financial surprises.

Individual Tax Filers: Dance Moves to Master

The TCJA has been the life of the party for individual taxpayers, bringing substantial benefits. But as we approach 2026, it’s crucial to understand how the end of this tax savings bash will impact you. Following are just a few of the bigger changes effecting most people:

  1. Higher Marginal Tax Rates – Under the TCJA, taxpayers have enjoyed lower marginal tax rates. Our progressive tax system means that as your income rises, so does your tax rate. When the TCJA sunsets, these rates will increase and the income brackets will expand, leading to higher tax liabilities for many.
  2. Reduction in Standard Deduction – One of the key highlights of the TCJA was the doubling of the standard deduction, making it more advantageous for many to take the standard deduction rather than itemizing. This benefit will significantly decrease after 2025. For instance, the standard deduction for single filers will drop from $14,600 in 2024 to $8,300 in 2026, and for married couples, it will fall from $29,200 in 2024 to $16,600 in 2026. This reduction means more people will need to itemize their deductions, and those who cannot itemize will see more of their income taxed.
  3. Return of Personal Exemption – The personal exemption, which reduces taxable income for each taxpayer, spouse, and dependent, will return at $5,300. While this offers some relief, it won’t fully offset the reduction in the standard deduction for many.

The Tax Foundation, in a May 6, 2024, publication, has estimated the average change in taxes paid per taxpayer under TCJA expiration relative to current policy. The estimated tax increase households will face if TCJA individual tax provisions expire are as follows:

  • Maryland: +$2,700
  • Pennsylvania: +$2,400
  • West Virginia: +$1,300
    This is quite a significant increase on the individual taxpayer tax return, emphasizing the importance of planning now before the music fades and the party ends.

Business Tax Filers: Keep the Rhythm Going

Businesses have also enjoyed substantial benefits under the TCJA, but they too will face significant changes. Here are the key changes impacting business tax returns:

  1. Continued Decline in Bonus Depreciation – Bonus depreciation has allowed businesses to immediately deduct a large percentage of the purchase price of eligible assets. However, this benefit will phase out. In 2024, businesses can depreciate 60% of the asset’s value, dropping to 40% in 2025 and 20% in 2026, before reverting to normal schedules in 2027. To maximize savings, consider making planned capital purchases before these changes take effect.
  2. Elimination of the Pass-Through Deduction – The 20% deduction on Qualified Business Income for pass-through entities (e.g., sole proprietorships, S Corporations) will be eliminated. This will result in higher tax liabilities for many small business owners.

Planning Ahead: Dance Your Way to Financial Preparedness

As the tax savings party winds down, it’s wise to plan now during 2024 and 2025, while we are still enjoying lower tax years. Here are some steps to consider:

Maximize Deductions Now – Take advantage of the higher standard deduction and other tax benefits while they last.

Evaluate Tax-Efficient Investments – Explore strategies that minimize taxable income in the coming higher tax years.

Review Retirement Accounts – Fully utilize contributions to tax-advantaged retirement accounts.

Consider your Estate Plan – The estate and gift tax exemptions will also decrease, so plan for your beneficiaries’ benefits with tax ramifications in mind.

Assess your Business Strategy – For business owners, reassess depreciation strategies, explore restructuring options, and consider timing for major purchases.

Plan Now to Avoid Post-Party Blues

While the tax savings under the TCJA have been beneficial, they are temporary. Proactive planning now can help limit the post-party blues when the impact of these changes is unavoidable. Because although surprise parties are fun, there is no such thing as a good tax surprise.

Since each tax situation is unique, it’s wise to consult with your tax professional and/or financial advisor to discuss what you need to do now to prepare for the expiration of the TCJA and safeguard your financial future.

If you would like help with tax planning, contact Saunders Tax & Accounting at www.SaundersTax.com or call us at 301-714-2071. Open Monday – Thursday 9 am to 5 pm. Awarded the Hagerstown Chamber of Commerce “2023 Small Business of the Year” and Hagerstown Hotlist 2024, we have been providing a Less Taxing Life and More Prosperous Solutions for 40 years!

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Tammy Annette Robinson 1964-2024

For the past years, Tammy helped take care of her mother. She enjoyed watching game shows and listening to contemporary Christian music.

Robert William Gordon 1947-2024

Born August 18, 1947, a son of the late Merrill R. and Goldie E. Kotzmoyer Gordon, Bob liked to hunt and fish, and loved spending time with his family.

Janice Mae Keller 1938-2024

Janice always enjoyed shopping trips with her children and always used that opportunity to stop at her favorite restaurant, Olive Garden.

Ethel R. Smith 1935-2024

Ethel was a very loving and caring woman. She will always be remembered and cherished as a loving wife, mother, grandmother, and friend.

Sharon M. Matthews 1951-2024

Sharon enjoyed game shows on TV, mostly Wheel of Fortune. She also liked watching the Food Network and talk about what they made.

Ralph V. Foltz 1928-2024

Ralph enjoyed hunting, telling stories, and traveling around the United States on bus trips, alongside his wife Lois.

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