Key provisions within the Tax Cuts and Jobs Act (TCJA) are anticipated to expire at the end of 2025. This event introduces significant uncertainty into tax planning for wealthy individuals and families. As the date approaches, it becomes crucial to anticipate potential impacts to your estate planning and prepare accordingly.
The end of 2025 is not as far off as it may seem. Waiting until these tax changes occur could limit available planning opportunities and lead to missed savings or increased tax liabilities. This article is the first in a three-part series outlining the tax expirations that will occur, examining the potential impacts on wealthy individuals and business owners, and offering proactive strategies you and your financial advisor can leverage to optimize your financial outcomes.
Would you like to get a head start and learn about estate planning and income tax planning strategies you could implement to potentially reduce your tax liabilities? Download our Tax Expiration Planning Guide to learn more.
What tax changes will occur and what are the potential impacts?
The Tax Cuts and Jobs Act (TCJA) of 2017 ushered in significant reforms, aiming to simplify the tax code, incentivize investment, and stimulate economic growth through various provisions that affected individuals, businesses, and the economy at large.
Several provisions of the TCJA are set to expire or change including individual tax rate reductions, estate tax exemptions, and the treatment of pass-through income. These potential changes could significantly impact tax liabilities, retirement planning strategies, and estate planning considerations.
Here are some key changes expected as part of the tax expirations at the end of 2025:
If you are impacted by these changes, what are your next steps? Part 2 of our blog series will review strategies to minimize estate tax liabilities and part 3 will review strategies to minimize income tax liabilities. If you would like to see those insights now, read our Tax Expiration Planning Guide.
An Uncertain Legislative Outlook
The outcomes of legislative decisions or extension of the TCJA remain uncertain. This introduces complexities in forecasting tax liability beyond 2025. This period of ambiguity underscores the critical need for proactive planning to help mitigate potential tax increases, optimize retirement savings strategies, and ensure compliance with future tax laws.
What could happen between now and the end of 2025 when the tax expirations are planned to occur? Just because a provision of the TCJA is set to expire does not mean it goes away - it could be extended, altered, or allowed to expire. Those decisions will be made by a future Congress that has yet to be elected, much less convened.
Full expiration or renewal of all provisions seems improbable, leaving a spectrum of intermediate options likely to increase tax burdens, with specific impacts uncertain. Crafting a tax structure for 2026 and beyond will force lawmakers to confront economic realities in a sharply divided political landscape.
As of now, three key factors will shape legislative decisions for the 2026 tax code:
Factor 1: The government's fiscal health has deteriorated significantly
Since 2017, federal debt held by the public (as opposed to debt owed within the government) has nearly doubled from where it stood at the end of 2017 and is continuing to rise. This surge is partly due to trillions of dollars injected into the economy in response to the COVID-19 crisis, but federal deficits continue to grow briskly.
A focal point for policymakers is the escalating cost of servicing the federal debt – the actual interest costs the government must pay. This cost is driven not only by higher debt levels, but also by increased borrowing costs. In 2017, yields on the 10-year Treasury hovered in the 2.0% - 2.5% range; this year, the Treasury has generally been paying over 4% for equivalent borrowing. Consequently, debt servicing now consumes a substantial portion of federal expenditures. Absent a major change, the U.S. will spend more this year on federal debt service than on discretionary defense spending in a hostile world.
Factor 2: No one likes paying taxes
It is no surprise that voters generally oppose tax increases, and elected officials are keenly aware of this sentiment, particularly in election years. “Temporary” tax cuts allow the initial legislators to take credit for saving taxpayers money without disrupting budget projections with the unspoken understanding that a future Congress will find it difficult to allow taxes to spike back. The future Congress, meanwhile, is spared the pain of publicly voting for a “tax increase” – they are only allowing a temporary measure to expire.
In this environment, lawmakers often prioritize preserving visible tax provisions, while shuffling around less visible items to meet current priorities. As a result, it is likely that the general shape of the personal income tax bracket structure (the component with the single biggest projected revenue impact) will be renewed, possibly with some changes below the surface.
Factor 3: Elections Matter
This year’s federal elections will have perhaps the most importance of the three factors on the actual outcomes. There is no doubt that the estate tax will be a contentious issue with passionate arguments from both political parties. Given the increase in overall wealth from a risking stock market, it is likely that more estates would be ensnared in an unmitigated cut than originally envisioned. This may lead to the inclination in both parties to strike a middle ground – i.e., reducing the estate tax deduction, but not as much as a full expiration would imply.
Both parties will be faced with tackling non-discretionary programs like Social Security given the huge portion of federal spending that goes to them, but the chances of any meaningful legislation by the end of 2025 are vanishingly small. So while some small measures on this front in 2025 may help provide marginal savings to fund lower taxes, such provisions are expected to be minor and at best a signal of future reforms.
Are you ready to learn more now? Our Tax Expiration Planning Guide examines the potential impacts on wealthy individuals and business owners, and offers proactive strategies you and your financial advisor can leverage to optimize your financial outcomes.
How Hancock Whitney Wealth Management Can Help
An effective estate plan should include flexibility to maximize the benefits of current tax laws and estate exemptions while recognizing the unknowns of future tax laws.
Hancock Whitney is here to help evaluate your current situation, and help you visualize the benefits of proactive planning. We have provided trust and fiduciary services since 1935 and will collaborate closely with you and other trusted professionals to develop tailored strategies that optimize tax efficiency while aligning with long-term financial goals.
Our team is ready to help you achieve your financial goals. Contact your advisor today.
Please consult your tax professional.
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This information is general in nature and is provided for educational purposes only. Information provided and statements made should not be relied on or interpreted as accounting, financial planning, investment, legal, or tax advice. Hancock Whitney Bank encourages you to consult a professional for advice applicable to your specific situation.
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