The Tax Cuts and Jobs Act (TCJA) of 2017, which significantly reshaped the U.S. tax system, is set to expire at the end of 2025. President-elect Donald Trump has expressed his intention to extend key provisions of this act, particularly lower federal income tax rates and the elimination of the state and local tax (SALT) deduction cap. Financial advisors are preparing their clients for these potential changes while emphasizing the importance of adhering to existing financial plans. The TCJA introduced sweeping reforms, including adjustments to income tax brackets, estate tax exemptions, and the SALT deduction cap. Experts suggest that regardless of the TCJA's future, maintaining a consistent financial strategy remains crucial.

Potential Extensions and Their Impact on Taxes

In the autumn of 2025, as the TCJA approaches its expiration, discussions about extending its provisions have gained momentum. With a Republican majority in both the House and Senate, President-elect Trump aims to preserve the reduced marginal income tax rates established by the TCJA. These reductions have benefited many Americans, lowering the top tax rate from over 39% to 37%. Financial planners like Maryanne Gucciardi recommend not delaying important financial decisions based solely on potential changes in tax rates. Instead, she advises completing actions such as Roth conversions now to maximize long-term benefits.

Another significant aspect of the TCJA is the SALT deduction cap, which limits the amount of state and local taxes individuals can deduct to $10,000. This cap has disproportionately affected high-income earners in states with higher taxes. Trump has proposed eliminating this cap, but doing so could increase the budget deficit. Malcolm Ethridge, a certified financial planner in Washington, D.C., notes that many clients own expensive homes in high-tax areas and do not fully benefit from the current cap.

The TCJA also doubled the estate tax exemption, allowing individuals to transfer up to $13.6 million to heirs without incurring estate taxes. If the TCJA expires, this exemption will revert to approximately $7 million. Financial experts emphasize the importance of creating an estate plan regardless of the TCJA's fate. Dennis Huergo, Vice President at Wealth Enhancement Group, warns that failing to plan could result in substantial financial losses for families. He also suggests implementing estate freezing techniques early to mitigate future issues.

From a journalistic perspective, the potential extension of the TCJA highlights the ongoing debate between tax relief and fiscal responsibility. While lower tax rates and increased exemptions may provide short-term benefits, they also pose long-term challenges for the federal budget. It is essential for policymakers to balance these competing interests to ensure sustainable economic growth. For individuals, the key takeaway is the importance of proactive financial planning, irrespective of political outcomes or legislative changes.