expect tax hikes and lost deductions.
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quick tax tip
with art werner
cpe today
as the end of 2024 draws closer, tax advisors and taxpayers should prepare for major changes that could significantly impact tax bills. art werner highlights an upcoming challenge: the scheduled expiration of the tax cuts and jobs act (tcja), which was signed into law in 2017 and brought significant tax breaks and lower tax rates.
like many tax laws, the tcja was designed to “self-destruct,” meaning its provisions will sunset at the close of 2025 unless congress takes action.
so, what does this mean for taxpayers? many of the tax benefits we’ve enjoyed since 2018 may soon disappear, reverting to pre-tcja rules. this shift can potentially impact everything from standard deductions to business income taxes.
here’s a closer look at what’s at stake:
- state and local tax (salt) deductions: one notable change the tcja introduced was a cap on state and local tax (salt) deductions, limiting taxpayers to a $10,000 deduction. if the tcja expires, this cap could be lifted, allowing for a total deduction of these taxes again. this change could bring significant tax relief for many, especially those in high-tax states.
- standard deduction adjustments: the tcja doubled the standard deduction, simplifying the filing process for many households. however, this generous deduction may soon shrink, potentially forcing more taxpayers to return to itemizing deductions or facing higher taxable incomes.
- higher tax rates and bracket adjustments: the tcja lowered individual tax rates, with the top bracket at 37%. if the law expires, we could see a return to a top marginal rate of 39.6%, and income thresholds will likely shift, pulling more taxpayers into higher brackets sooner.
- reduction in tax credits and possible return of exemptions: tax credits may be scaled back, and personal exemptions removed under the tcja could reappear. while exemptions could provide some relief, reduced credits may ultimately offset this benefit, resulting in higher overall taxes for many families.
- section 199a deduction for small businesses: the section 199a deduction allows certain businesses to deduct up to 20 percent of qualified business income. this deduction has been a cornerstone of tax planning for business owners. if it sunsets, flow-through businesses could face significant increases in taxable income, resulting in higher tax bills.