Nov 2024
Dear Clients:
The Tax Cuts and Jobs Act (TCJA), signed into law by President Donald Trump in December 2017, brought about substantial tax reforms, many of which were temporary and are set to expire in 2025.
If Congress doesn’t renew or amend TCJA tax provisions, then individual filers will see:
- A rise in their income tax rates
- a lower standard deduction
- changes to itemized deductions
- a rollback of the child tax credit
(See Tax Changes in 2024 for more information.)
The incoming administration will look to make permanent the TCJA.
- Reduction in tax rates: The TCJA reduced the tax rates for most individual income brackets. Currently indexed to inflation.
- TCJA nearly doubled the standard deduction, which reduces taxable income for individuals who do not itemize deductions. Currently indexed to inflation
- SALT deductions of $10,000 cap on state and local income tax are set to expire after 2025, meaning the full SALT deduction could be reinstated for taxpayers who itemize their deductions, potentially benefiting those in high-tax states, like California or New York.
- Mortgage Interest Deduction: The TCJA limited the mortgage interest deduction for new home mortgages to $750,000 (down from $1 million), which could revert to the $1 million cap after 2025.
- Child Tax Credit Under the TCJA, the credit was expanded from $1,000 to $2,000 per qualifying child (under age 17). In addition, the income threshold for eligibility was raised, making more families eligible for the credit.
Other Provision Set to Expire
- Qualified Business Income Deduction (QBI): The TCJA created a 20% deduction for pass-through businesses (such as partnerships, LLCs, S corporations and Schedule C) to benefit with a 20% reduction of tax.
- While this deduction is currently scheduled to expire in 2025, it primarily impacts small business owners, rather than individuals directly. This was a compromise to the lowering of corporate tax rates, so non-schedule C companies could also benefit and lower the effective tax rate for business owners.
In the future, if the expanded standard deductions from TCJA are extended or made permanent, most taxpayers will never have to itemize again.
The states will probably not follow raising the standard deduction, so itemizing on the state is important. Continue to gather any documents that you previously used for deductions on a federal return, to deduct on a state return.
For most clients will receive a tax letter in January, others will be emailed. The letter will show how to navigate this website and will have an attached personal information sheet to include with their tax documents, and a checklist, on the reverse side to check off the documents to include.
Please contact me if you would like a detailed list of documents used to prepare the 2023 tax return.
Kind Regards,
Paul Laird EA