What Happens When the TCJA Expires? A 2025 Tax Policy Crossroads

The clock is ticking on one of the biggest tax overhauls in recent history. The Tax Cuts and Jobs Act (TCJA) of 2017 brought sweeping tax reductions for individuals and businesses, but many of its provisions are set to expire at the end of 2025. If lawmakers don’t act, taxpayers across income levels will see major changes to their tax obligations starting in 2026.

With potential tax hikes on the horizon, individuals and businesses need to start preparing for the post-TCJA era. Here’s a breakdown of what’s changing and what you can do to minimize your tax burden.

What is the TCJA?

The Tax Cuts and Jobs Act (TCJA) was signed into law in 2017 as a major tax reform designed to lower corporate and individual tax rates, stimulate business investment, and simplify the tax code. It introduced several key changes:

• Lower Individual Tax Rates – Marginal tax rates were reduced across all income levels.
• Corporate Tax Cuts – The corporate tax rate was permanently lowered from 35% to 21%. However, this could potentially change again with congressional action. 
• Increased Standard Deduction – Nearly doubled the standard deduction, reducing taxable income for many filers.
• Expanded Child Tax Credit – The credit was increased from $1,000 to $2,000 per qualifying child.
• Elimination of Personal Exemptions – Replaced with higher standard deductions and credits.
• Qualified Business Income (QBI) Deduction – Provided a 20% deduction for pass-through businesses.
• 100% Bonus Depreciation – Allowed businesses to immediately deduct the full cost of qualifying asset purchases.

While some provisions, such as the corporate tax rate cut, were made permanent, most individual and business-related provisions were temporary and are set to expire at the end of 2025 unless Congress intervenes.

Key Provisions Set to Expire

The expiration of the TCJA will trigger higher tax rates, reduced deductions, and shifting incentives for businesses. Here’s what to expect:

1. Higher Individual Tax Rates

Under the TCJA, tax rates were lowered across the board. If the law expires:

• The top marginal tax rate will increase from 37% to 39.6%.
• Middle-income households will see rate increases across multiple brackets.
• The Marriage Penalty (higher taxes for married couples filing jointly) may return for certain brackets.

2. Standard Deduction and Personal Exemptions

• The standard deduction, which nearly doubled under the TCJA, will revert to its pre-2017 levels (adjusted for inflation).
• Personal exemptions, eliminated under the TCJA, may return, but not at the same levels as before.

3. Child Tax Credit Reduction

• The credit will decrease from $2,000 to $1,000 per child.
• Phase-out thresholds for high earners will drop, reducing eligibility for many families.

4. Estate Tax Exemption Cut in Half

• The current estate tax exemption ($13.61 million in 2024) is expected to fall back to around $5–6 million per individual.
• More estates will be subject to federal taxation, requiring careful estate planning.

5. Business Tax Rate Increases

• The Corporate Tax Rate will remain at 21% unless changed by Congress, but other benefits will expire.
• 100% Bonus Depreciation for new equipment purchases will be phased out.
• Interest Expense Deductions will be further limited.
• The Qualified Business Income (QBI) Deduction (20% pass-through deduction) will no longer be available for small businesses.

The Impact on R&D Tax Credits

One of the most critical tax benefits for innovative businesses is the Research & Development (R&D) Tax Credit. The good news? The R&D Tax Credit is a permanent part of the tax code, meaning it will not automatically expire with the TCJA. However, other tax provisions that support innovation and investment are at risk.

How the TCJA Expiration Affects R&D Tax Credits:

• Reduced Tax Savings – If corporate and individual tax rates increase, R&D tax credits may offset a smaller portion of overall tax liability. 
• No More 100% Bonus Depreciation – Companies that previously benefited from accelerated depreciation on R&D-related equipment purchases will need new tax strategies.
• Stricter Expense Deduction Rules – Changes to business expense deductions, including interest expense limitations, could impact how companies finance research and innovation. 
• Increased Compliance Scrutiny – With tax policy uncertainty, businesses claiming R&D credits should be prepared for greater IRS scrutiny and ensure they have proper documentation.

If your company relies on R&D tax incentives to reduce costs and drive innovation, now is the time to develop a tax strategy that maximizes your benefits under the changing tax environment.

What Can You Do to Prepare?

The potential changes to the tax code mean proactive planning is more important than ever. Here’s how you can prepare:

For Individuals:

• Review your tax bracket – If rates rise, accelerating income into 2025 could result in lower overall taxes. 
• Maximize retirement contributions – Consider contributing more to tax-deferred retirement accounts before higher rates kick in. 
• Estate planning – High-net-worth individuals should explore trusts and gifting strategies before the estate tax exemption drops. 
• Plan for deductions – If the standard deduction shrinks, keeping records of itemized deductions may be more beneficial.

For Businesses:

• Take advantage of bonus depreciation – Invest in equipment and assets while 100% bonus depreciation is still available. 
• Reevaluate business structure – Without the 20% QBI deduction, some businesses may benefit from changing entity types. 
• Maximize R&D tax credits – Work with tax professionals to ensure compliance and fully leverage the credit’s benefits.
• Plan for interest deduction changes – If you rely on financing, consider restructuring debt before limits tighten.

What’s Next? Will the TCJA Be Extended?

There is no clear answer yet. Congressional debate is already underway, with some lawmakers pushing to extend the tax cuts permanently, while others argue that doing so would add trillions to the national debt.

Decisions on extending, modifying, or sunsetting the TCJA will unfold in 2025, with tax policy negotiations shaping the final outcome.

Stay Ahead of Tax Changes with TaxTaker

The expiration of the TCJA could bring significant tax increases for individuals and businesses. Strategic tax planning is critical to reducing your tax burden before 2026.

TaxTaker can help you navigate these changes with expert tax credit solutions. Whether you're looking to claim the R&D tax credit, optimize deductions, or restructure your tax strategy, our team is here to help.

Don’t wait until it’s too late—send us a message today!

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Source:

Bloomberg Government. (2025). 2025 Tax Policy Crossroads: What Will Happen When the TCJA Expires? Retrieved from https://about.bgov.com/insights/elections/2025-tax-policy-crossroads-what-will-happen-when-the-tcja-expires/

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