Confused about all the tax changes in the past decade? Just wait
Jeanne Sahadi
7 min read
If keeping up with tax changes in the law were a sport, 2017 and 2025 might be considered the Tax Olympics.
Recall that during the first year of President-elect Donald Trump’s first term, lawmakers defied the odds and passed the largest overhaul of the tax code in more than 30 years.
Now, this year, lawmakers will use the first 11-plus months of Trump’s second term to decide what to do about huge swaths of that overhaul — known as the Tax Cuts and Jobs Act. That’s because most of its key personal income tax provisions — and a few business ones — are set to expire on December 31.
While much has changed in the past several years, one thing hasn’t: The potential for the high-stakes tax debate to create a lot of confusion for filers.
They will yet again have to make sense of a head-spinning array of new proposals, amendments and political fights before learning which provisions will stay, which will go and which will be tweaked — and how all of it combined will affect their bottom line.
What followed in the wake of 2017
During the 2017 debate and the subsequent enactment of the TCJA, enrolled agent Karla Dennis said, “The majority of my [professional] peers really were just overwhelmed. Tax [changes] were coming at you right and left. … I don’t know how they expect individuals to keep up with this.”
CPA Miklos Ringbauer, treasurer for the California Society of CPAs, noted that the way the original 2017 law was written created a lot of questions and room for interpretation with some provisions, especially a new 20% deduction created for businesses and partnerships that file under the individual income tax code. “There are a lot of things that were either new or modified that resulted in unanswered questions. And even up until today the IRS is still finalizing some of [its guidance],” Ringbauer said.
As for filers, enrolled agent Tom O’Saben, director of tax content at the National Association of Tax Preparers, said some of his clients still have questions seven years after the TCJA’s enactment, partly because they’d been preparing their taxes differently for 25 years beforehand, and partly because so many other high-impact, short-term tax provisions went into effect during the pandemic, like the very large temporary increase in the child tax credit, which had temporarily slashed the poverty rate in half.
Key tax provisions expiring this year
There are no fewer than 34 TCJA-related tax provisions set to expire in 2025, according to the Joint Committee on Taxation. Any that are allowed to expire would revert to what they were before TCJA took effect. Among them:
Individual income tax rates: The TCJA lowered five of the seven individual income tax rates and changed in most instances the range of taxable income (aka the tax bracket) subject to each rate. The new brackets were still adjusted for inflation each year as they were under the previous tax law, but TCJA applied a different inflation index than the one used for decades up until 2017.
Personal exemptions: The TCJA also repealed personal and dependent exemptions, which in 2017 let you deduct $4,050 for yourself, your spouse and your dependents.
The standard deduction: The 2017 tax overhaul nearly doubled the standard deduction. In doing so it drastically reduced the number of filers who itemized their deductions, which you only do when your deductions combined exceed your standard. Those deductions include mortgage interest, state and local taxes, foreign taxes and charitable contributions, among others.
The child tax credit: The TCJA doubled the size of the child tax credit, a dollar-for-dollar reduction of your tax liability. It also increased how much of it can be paid out as a refund to filers who otherwise wouldn’t have enough tax liability to offset to get the full credit, and expanded eligibility for who can take it.
The state and local tax deduction: The 2017 law put a $10,000 cap on the so-called SALT deduction, which is available only to those who itemized their deductions. If the cap is allowed to expire, filers would be allowed to deduct all of their state and local income, property and sales taxes. Before TCJA, the SALT deduction was a key reason many people living in high-tax states would itemize since their state and local taxes combined could easily exceed $10,000.
The Alternative Minimum Tax: The TCJA drastically reduced the number of filers hit by the AMT — a parallel tax system that can result in a higher tax bill. Originally created to ensure the highest-income and wealthiest tax filers couldn’t escape paying federal income taxes, it ended up ensnaring upper-middle-income filers, including families with a lot of children and those living in high-tax states, since it disallowed many deductions ordinary filers normally took.
The qualified business income deduction: The QBI was created under TCJA and lets businesses filing under the individual tax code deduct 20% of their income. The provision reduces businesses’ incentive to convert to a C corporation to get a lower corporate income tax rate. But to prevent gaming, it also disallows the new deduction for some high-earning filers in certain occupations and limits its benefit for other high earners based on the wages they pay employees and the amount of capital their business invests, according to the Tax Policy Center.
Estate taxes: Among other changes related to estate and gift taxes, the TCJA nearly doubled how much of your estate would be exempt from federal taxes upon your death. It went from $5.6 million in 2017 to $11.2 million in 2018, which adjusted for inflation has increased it to $13.99 million per person today (or nearly $28 million per married couple).
Deficits again likely to drive key decisions
While the TCJA made many corporate provisions permanent, most of the individual provisions were made temporary to limit the bill’s total cost and stay within the budget rules at the time.
Going forward, extending all of the TCJA as is has been estimated to cost $4.6 trillion over 10 years.
So, to the extent lawmakers decide they want to keep the TCJA from busting the budget going forward, they may decide to alter the size or eligibility rules for some provisions, decline to extend others, or find other ways to offset the cost of extending most if not all expiring provisions.
Don’t make any changes yet
No matter how emphatically Trump or any lawmaker proposes to extend or amend a tax measure — or create a new tax provision, such as proposals to not tax Social Security benefits or tips — don’t count on it unless and until it’s a matter of law.
Dennis plans to brief her clients throughout the year on the debate and run scenarios for them of what various live proposals would mean for their tax situation, particularly as it applies to the standard deduction, the SALT, the personal exemption and the child tax credit.
Ringbauer said tax professionals, who have more tax tools today to predict and analyze changes, will be able to more quickly identify which clients would be affected by a given proposal and help them “understand what the challenge is or the benefits would be of that proposed tax law change.”
Dennis is also cautioning clients not to make any changes based on assumptions. “Do not go into 2025 changing any of your withholdings. Hold steady for this year,” she advised.
She also will continue to recommend they maintain good financial records for everything they do, even if under the TCJA they no longer needed documentation for itemizing, since they switched to the standard deduction.
“Keep your documents. Don’t decide what you can deduct or not deduct,” Dennis said.
Because the answer to that tax question and others may change — a little or a lot — by the end of this year.
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