Highlights from the 2025 Version of the Tax Cuts and Jobs Act

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Stewardship Emphasis
Sometimes you just have to live with consequences, but with knowledge and a plan, sometimes you can shape how you are affected by consequences.

You have likely heard about the legislation Congress worked on establishing as one of the current Presidential Administration’s key priorities. While there are many elements of the bill, the primary goal is, as the bill’s official name indicates, a reduction of taxes. Some tax provisions are not actually changes from the present law but extending the provisions put in place during the first Trump Administration when the Tax Cuts and Jobs Act of 2017 was passed, many of which were set to expire at the end of 2025. There has been a lot of discussion about who benefits from this new law, and as is the case for most things, it depends on your circumstances. Perhaps the biggest area of debate has been around the non-tax elements of the bill because in order to allow some of the tax reductions to be included, there are a number of offsetting reductions to government programs that could have long-lasting impact on certain constituencies of the population. To give you a sense of how these new provisions may impact you, we will hit some of the highlights of what is included in the bill and the consequences of those provisions.

Tax Provisions Affecting Individuals
If you recall, when the Tax Cuts and Jobs Act of 2017 was passed, the Federal tax brackets were adjusted, and changes were made to eliminate Federal personal exemptions while increasing the levels of the Standard Deduction. The makeup of your household and whether you were able to itemize deductions or not went a long way towards determining whether the bill improved or degraded your tax situation. With the extension of those provisions, now making them permanent, the structure of how you file your taxes in the future will be much like it has been over the last 8 years; however, some specific items have been adjusted. Even though the provisions from the 2017 law were made permanent, some items are being changed but only through 2028, coinciding with the end of the President’s term, at which point, they will revert back to the way they were before this bill passed, unless they get further extended. Those items are an increase in the Standard Deduction beyond the normal annual Cost of Living Adjustment (COLA) by $1,000 for Single filers and $2,000 for Married couples, an increase of the Child Tax Credit from $2,000 to between $2,200 and $2,500 per child, depending on the final version of the bill, an additional deduction of $6,000 for adults age 65 and over if their Adjusted Gross Income (AGI) is less than $75,000 for Single filers and $150,000 for Married couples, and exemption of Tips and Overtime earned income from Federal tax. Another temporary change included in the bill would allow auto loan interest to be tax deductible for some auto loans. Regarding the Child Tax Credit, that provision of the tax law is meant to aid families with children, but an important note is that some households may not be eligible because there is a refundability test to qualify, so those who earn lower income may not be able to benefit from the credit. A provision that was a point of controversy with the 2017 Act was the $10,000 limit placed on the State and Local Tax deduction for filers who itemized, and this version of the Act increases that limit to $40,000 for 5 years, after which presumably, it would revert back to the $10,000 level. This bill also would increase the amount of assets exempted from Estate Tax from $13,610,000 to $15,000,000 for individual’s estates (double that for couples) and make that increase to the baseline exemption permanent, still adjusted for inflation annually.

Tax Provisions Affecting Businesses
There are also provisions that are geared towards reducing tax/cost of businesses. The 2017 Act introduced the Qualified Business Income (QBI) deduction, which allows businesses that are not C-Corporations to receive a personal income tax deduction on the net income that passes through from the business to their personal tax return. Under the 2017 Act, the allowable deduction was the lower of 20% of personal taxable income or 20% of net business income, but that provision was due to expire at the end of 2025. This year’s act makes the QBI Deduction permanent but also increases the rate from 20% to 23%. Businesses are able to deduct expenses from income, but for property and equipment, they generally cannot fully write off those purchases and instead must write off their value via a depreciation schedule over a period of years. This provides businesses with a way of reducing their taxes over time even without cash being expended in years after the purchase of those assets. The 2017 Act allowed qualifying assets up to a value of $1 Million to be immediately deducted, like an expense, rather than depreciated over a period of years. The 2025 version of the Act increases the amount available for immediate deduction from $1 Million to $2.5 Million, with a reduction if the property exceeds a value of $4 Million. The 2017 Act also introduced Qualified Opportunity Zones (QOZs), which allow owners of assets who have sold at a profit to defer paying the capital gains on the sale of the asset. From the original law, the capital gains on those asset sales could be deferred until the 2026 tax year. The final details have not been fully made available, but it appears that the deferral of capital gains in the new law will extend until the 2033 tax year. The new law also lowers the limit on interest deductibility for businesses.

Changes to Government Programs
The decrease in tax revenue generated as a result of the provisions that provide the noted tax breaks is intended to be at least partially offset by reductions to spending on certain government programs. The two big ticket items where spending is being reduced in the bill are for Medicaid and the Supplemental Nutrition Assistance Program (SNAP), both of which primarily provide support to low-income families. The way Medicaid spending is being reduced is by imposing work requirements on individuals under age 65 or those who have children under the age of 14 who would otherwise be eligible to receive benefits and perhaps beginning to charge a co-pay for patients using Medicaid services to offset expenses of the program. Those individuals who do not meet the work requirement limit would not be able to receive benefits, thus reducing the amount of spending on the program. The reductions in spending for SNAP are to be executed by requiring states to pick up some of the cost of those benefits, whereas currently the Federal government covers those costs entirely.

As is the case with most large-scale financial reforms, some people will benefit, and others will pay the cost. You may fall into one camp or the other right now, but determining how these changes will impact you is largely dependent on your specific household circumstances, so with about 6 months before these provisions begin taking hold, you can begin planning in advance so you can put yourself in the most advantageous position under the new law.

The Empowerment Channel    |   Volume CCXXXVIV   |    Dedicated to Promoting Financial Education through Stewardship