Our 3-part series helps you understand impacts of the expiration of the Tax Cuts and Jobs Act (TCJA) at the end of 2025 and provides guidance about how to potentially reduce your tax liabilities.
In Part 1 we provided an overview of the anticipated tax policy changes and the legislative backdrop setting the stage for these changes. Part 2 outlined how the tax expirations could impact your estate planning and offered guidance about how to proceed. Now here in Part 3 we review changes to income tax policy and outline strategies for individuals and business owners to help optimize their financial planning.
The clock is ticking on these changes and the end of 2025 is closer than it may seem. Waiting until these tax changes occur could limit your available planning opportunities and result in missed savings or increased tax liabilities. To get a head start and learn about strategies you could implement, read our Tax Expiration White Paper where insights from all three articles in our series are compiled in one comprehensive guide.
A Recap of Tax Code Changes that will Occur
The Tax Cuts and Jobs Act (TCJA) of 2017 ushered in significant reforms with the aim of simplifying the tax code, incentivizing investment, and stimulating economic growth through various provisions that affected individuals, businesses, and the economy at large. Certain provisions of the TCJA are set to expire or change, which could significantly impact the tax liabilities, retirement planning strategies, and estate planning considerations of some US taxpayers. Changes include:
| Provision | Current Status | Status if provision expires as currently stated: |
Taxpayer Impact |
| Marginal Tax Rate Rates apply to taxable income within tax brackets |
Seven brackets 10%, 12%, 22%, 24%, 32%, 35%, 37% |
Seven brackets 10%, 15%, 25%, 28%, 33%, 35%, 39.6% |
Expiration increases the percentage of income tax owed within each bracket. |
| Standard Deduction Reduces taxable income to create a zero-rate tax bracket. |
Single: $14,600 Married: $29,200 |
Single: $8,300 Married: $16,600 |
Expiration increases taxable income for taxpayer. |
| Qualified Business Income Deduction Personal business income is generally taxable at individual income tax rate. |
20% deduction on qualified business income. |
No deduction. | Expiration will result in higher effective income tax rates for business owners. |
| Bonus Depreciation on Qualified Property Businesses generally can deduct the cost of new investments over time. |
60% bonus deduction allowed in 2024. |
Bonus deduction declines annually by 20% until it reaches zero in 2027. |
The reduction in depreciation of property will reduce allowable business expenses resulting in greater net income for the business. |
Understanding the implications of these changes on your specific financial situation is essential for navigating the evolving tax landscape effectively and optimizing financial outcomes in the years ahead.
For details on all of the key tax provisions that are expected to change at the end of 2025, read our Tax Expiration White Paper.
Income Tax Planning: Strategies to reduce taxes in a given year
As discussed above, the expiration of the temporary provisions of the TCJA after 2025 could mean individual income tax rates, child tax credits and standard deductions would revert to previous levels. The result would be higher tax liabilities for taxpayers.
In anticipation of this occurring, taxpayers could consider a number of strategies for reducing taxes in a given year:
- Use Roth conversions and tax-advantage investment accounts to control your tax liability. Compare current tax rate to expected future rate to determine if a Roth conversion is right for you. Further, holding a mix of pre-tax and Roth post-tax savings could provide you with the option of withdrawing from one versus the other based on your expected tax bracket.
- Depending on your income, your capital gains could be taxed at a higher rate after the TCJA sunset. It could make sense to defer harvesting capital losses—e., selling shares at a loss in order to offset capital gains—until 2026, when the losses will be more valuable.
- Accelerate income into the current year. If you expect to receive income in the coming years but have a choice whether to take receipt of it prior to 2026, the increase in tax rates warrants looking into doing so. Roth conversions may also be a way to accelerate income prior to 2026.
- Time deductions to have the largest impact. Do you anticipate that your tax rate will increase with the TCJA sunset, and do you expect to incur a deductible expenditure which can be deferred? Then you may want to consider delaying paying or incurring it as these deductions will be more valuable against higher income tax rates.
- Make charitable contributions, which can be deducted from taxable income and thus reduce income taxes. These contributions can also be a part of estate tax planning. By donating appreciated assets to charity, you can avoid capital gains taxes and receive a tax deduction.
- Explore gifting income-producing assets such as rental properties to family members in lower tax brackets.
- If you are considering purchasing a home – either a principal residence or a second home - in the next year, and you plan to finance the purchase with a new mortgage of over $750k, you may want to consider delaying your home purchase until 2026 when the mortgage value cap on the ability to deduct interest payments will revert from $750k to $1MM.
Business Owner Planning: Strategies to optimize tax efficiency
When enacted in 2017, the TCJA brought substantial changes to the taxation of U.S. businesses, aiming to promote growth, simplify tax structure and incentivize domestic investment. Key changes included:
- a reduction in the corporate tax income rate from 35% to 21%
- adjustments to depreciation rules allowing for immediate expensing of certain capital investments
- a 20% deduction on qualified business income and certain other types of income
The potential expiration of certain provisions could influence business decisions regarding investment expansion, and overall tax planning strategies in the coming years.
If you are a business owner, consider these strategies to optimize tax efficiency:
- Evaluate entity structuring to determine benefits of different types of business entities including pass-through entities such as S corporations or partnerships. Following the sunsets, pass-through entities may become less attractive due to the increase of individual tax rates and the elimination of the 20% qualified business income (QBI) deduction, especially considering the corporate tax rate is scheduled to remain at its lower rate of 21% indefinitely.
- Time the purchase of depreciable assets to maximize bonus depreciation deduction. The bonus depreciation deduction benefit has declined since 2023, where 100% of the depreciation was deductible immediately to 60% in 2024. The benefit will decline to 40% in 2025, 20% in 2026, and 0% thereafter. If a business is considering the purchase of depreciable assets, sooner rather than later may be the time to make the purchase.
- Other potential solutions may include accelerating income, when possible, to receive the income prior to the sunset, or delaying expenses that may reduce income from the qualified business until after the sunset may be beneficial.
Ready to learn more? Read our Tax Expiration White Paper.
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.
The information, views, opinions, and positions expressed by the author(s), presenter(s), and/or presented in the article are those of the author or individual who made the statement and do not necessarily reflect the policies, views, opinions, and positions of Hancock Whitney Bank. Hancock Whitney makes no representations as to the accuracy, completeness, timeliness, suitability, or validity of any information presented.
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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