By: AnnaMarie Mock, CFP®
One of the most critical pieces of legislation we're watching is how Congress will address the sunsetting provisions of the Tax Cuts and Jobs Act (TCJA). In 2017, President Trump passed the TCJA, which delivered broad tax relief, but many of its key provisions are set to expire at the end of 2025. What happens next could impact your income, deductions, and overall financial plan — especially regarding taxes.
Let's take a closer look at what the TCJA has accomplished, the challenges facing Congress, and how you can start preparing now—while there's still time to make smart moves.
What the TCJA Set Out to Do
TCJA was designed to stimulate economic growth by lowering taxes for individuals and businesses. And in many ways, it succeeded:
Individual tax rates were reduced, giving taxpayers more disposable income to spend or save.
Lower corporate tax rates benefited businesses, encouraging hiring, investment, and expansion.
It also simplified the tax filing system for millions of taxpayers and accountants by nearly doubling the standard deduction. Today, about 90% of taxpayers take the standard deduction, compared to just 68% before the TCJA.
These changes helped streamline the tax system and boosted the economy and consumers.
But There's a Catch
Many of the TCJA's tax benefits were temporary, set to "sunset" at the end of 2025 unless Congress acts. Unless something changes, we could return to the higher tax rates and narrower deductions of the pre-TCJA era.
Why weren't the changes permanent? It all comes down to budget rules. The TCJA was passed through a process called budget reconciliation, which allows legislation to pass with a simple majority in the Senate. However, because of the quickening process, the provisions are only for a defined period, usually 10 years. At that point, the budget needs to be reviewed, considering the tax law to ensure it complies with the national budget and needs to be accompanied by spending cuts. The goal of the reconciliation process is not to increase the deficit, although that has not been the case in the past two decades.
Now, Congress faces a familiar challenge: deciding whether to extend the tax cuts—and how to pay for them. Extending the TCJA could add trillions to the national deficit without spending cuts to offset them. And that's where the political battle is heating up.
What's at stake if TCJA expires?
Many of the key provisions of the Tax Cuts and Jobs Act (TCJA) are set to expire at the end of 2025, meaning they could revert to pre-2017 law unless Congress acts. This includes lower individual tax rates, the expanded standard deduction, the cap on state and local tax (SALT) deductions, and the increased estate and gift tax exemption. If no extension is passed, these benefits will roll back, resulting in higher taxes and fewer deductions for many households. The uncertainty around whether these provisions will be renewed creates planning challenges and highlights the importance of staying proactive.
The SALT (State and Local Tax) deduction cap has been one of the most contentious provisions of the TCJA. Capping the deduction at $10,000 disproportionately impacted taxpayers in high-tax states like New York, California, and New Jersey, leading to strong opposition from lawmakers in those regions. Efforts to repeal or adjust the cap have repeatedly stalled in Congress as debates over tax equity, revenue loss, and geographic fairness continue to divide both parties. Its future remains a key flashpoint in tax negotiations.
The “One Big Beautiful Bill”
To address the looming expiration, House Republicans have introduced an extension of TCJA and a sweeping proposal known as the One Big Beautiful Bill Act. This legislation aims to extend many TCJA provisions and add new ones. While it hasn't passed the Senate yet, here are some of the headline proposals that could impact individuals and families:
No Federal Tax on Tips – A significant change for service workers, this would make tips completely tax-free.
No Federal Tax on Overtime Pay – Overtime income would no longer be subject to federal income tax.
Additional Deduction for Seniors – Individuals age 65 and older would qualify for a new deduction to help with rising living costs.
Deductible Car Loan Interest (U.S. Brands Only) – From 2025 to 2028, interest on loans for American-made vehicles would be tax-deductible.
Raise the SALT deduction to a $30,000 cap and make it permanent.
These proposals reflect an effort to offer broad-based tax relief and raise questions about affordability and long-term fiscal impact. As negotiations unfold, the final version of the bill could change significantly.
A Closer Look at the Big Picture
Most of these provisions are centered around lowering taxes for individuals and businesses. This is good for the consumer because there's more discretionary income, but it's detrimental to the government. As taxes go down, so does the government's revenue. Congress is trying to balance tax relief with fiscal responsibility, and this is the main backdrop for their discussions.
While tax relief is appealing, it doesn't come without cost. The federal deficit currently stands at $1.9 trillion, and extending the TCJA could add $4 to $5 trillion to the deficit over 10 years if not accompanied by spending cuts.
The national deficit refers to the difference between what the government spends in a fiscal year and what it earns through taxes and other revenues. If the government spends more than it receives, it runs a budget deficit, meaning it must borrow money to make the difference. The annual budget deficit contributes to the growth of the national debt over time as the government borrows to cover the shortfall.
As the government's debt levels increase from higher deficits, it must borrow more money by issuing Treasury securities (bonds, notes, bills). This means that the interest payments on this debt will also increase. Currently, interest payments are 3% of GDP. The TCJA deficit would add 2-3% of GDP and reduce spending in other areas.
As the debt grows, it begins to approach the debt ceiling. When the debt ceiling is reached, the government can't issue new debt to pay its obligations unless Congress raises it. If the ceiling isn't increased, the government risks defaulting on its debt, which could have catastrophic economic consequences. However, this isn't anything new, as the debt ceiling has been raised 90 times since 1959.
What This Means for Your Financial Plan
As the Tax Cuts and Jobs Act (TCJA) expires, now is the time to begin preparing for potential changes, whether the law sunsets entirely or undergoes significant modifications. From an estate and income planning standpoint, you can take several strategic actions to protect your financial future.
On the estate planning side, individuals may want to accelerate lifetime gifting, primarily by transferring low-cost basis assets to reduce the taxable value of their estate. Charitable giving strategies can also be valuable, particularly through donor-advised funds or trusts, to get the current asset out of your estate and all the future growth. Additionally, with the estate and gift tax exemption set to be cut nearly in half if the TCJA sunsets, it may be wise to lock in the current higher exemption using irrevocable trusts or other transfer techniques.
From an income planning perspective, you can take advantage of today's lower tax brackets by accelerating income into 2025. This might include realizing capital gains, completing Roth IRA conversions, or taking early distributions where appropriate. Looking ahead to 2026, taxpayers should also consider bunching deductions into that year when the standard deduction is expected to shrink, making itemizing more likely. And don't overlook retirement contributions: 2026 could be a good year to maximize tax-deferred retirement plan contributions, while 2025 may offer an ideal window to fund Roth IRAs for long-term tax-free growth.
Looking Ahead
With the future of the TCJA still uncertain, proactive tax planning can help you stay ahead of the curve—protecting your wealth and positioning you for long-term success regardless of what Congress decides.
But remember—tax planning doesn't happen in a vacuum. A strategy that saves you money this year might throw off your retirement timeline or estate plan down the road. That's why we always look at your financial life as a whole.
AnnaMarie Mock is a CERTIFIED FINANCIAL PLANNER™ and Partner at HIGHLAND Financial Advisors, LLC, a Fee-Only financial planning firm that offers comprehensive financial planning, retirement planning, employer retirement planning, and investment management. AnnaMarie graduated from Montclair State University with a degree in finance and management and successfully passed the CFP® national exam in 2016. She has been working at Highland Financial Advisors since 2013 as a fee-only, fiduciary Wealth Advisor and is a member of NAPFA.
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