Changes to U.S. Tax Laws on the Horizon

Executive summary:

  • The Tax Cuts and Jobs Act of 2017 is set to expire at the end of 2025, meaning significant changes to tax laws are on the horizon
  • Taxpayers will be affected very differently depending on their individual circumstances
  • We believe advisors should be proactively reviewing each client’s tax situation to determine key actions that could help mitigate any impact from the upcoming changes in tax laws.

The Tax Cuts and Jobs Act of 2017 (TCJA) is expected to sunset at the end of next year and there is likely to be a lot of chatter about what the potential changes in tax laws could mean for U.S. taxpayers. So much so, we are going to be writing quite a few blogs about this subject! But first, let’s answer some of the many questions we have been receiving regarding this tax law and its upcoming expiration.

What was the goal of The Tax Cuts and Jobs Act of 2017?

The TCJA of 2017 had two primary goals:

  1. to lower taxes for a wide swath of taxpayers, and
  2. to simplify the annual return filing process.

Broadly speaking, these were accomplished. However, the impact of the changes affected individual taxpayers quite differently.

The TCJA did reduce the tax rates on most tax brackets as well as widen the income levels in many tax brackets. For example, the tax rates on the two middle tax brackets fell from 25% and 28% to 22% and 24%, with the combined brackets widening from $77,400-$237,950 to $77,400-$315,000. This benefitted a large group of Americans.

On the second item, the oft-mentioned goal of getting the often reviled and rarely loved Form 1040 down to the size of a postcard did not happen. What did happen was that many smaller and not broadly used deductions were eliminated or made more limited, and the “standard deduction” was raised.

This resulted in fewer itemized deductions being available, and fewer taxpayers with itemized deductions that exceed the standard deduction threshold. This arguably made the tax filing process more streamlined for a wider swath of taxpayers and made for a higher quantity of simple form submissions.