The TCJA Sunset: What to Expect When Tax Cuts Expire
The Tax Cuts and Jobs Act expires after 2025. Here's what to expect: higher tax rates, lower deductions, and strategies to prepare before the deadline.
The Tax Cuts and Jobs Act expires after 2025. Here's what to expect: higher tax rates, lower deductions, and strategies to prepare before the deadline.
The TCJA Sunset: What to Expect When Tax Cuts Expire
Update (July 2025): Congress acted. The One Big Beautiful Bill Act (OBBBA) was signed into law on July 4, 2025, making most TCJA provisions permanent. See What High Earners Need to Know About OBBBA for the current tax landscape.
On January 1, 2026, your taxes are scheduled to increase automatically—unless Congress acts.
The Tax Cuts and Jobs Act of 2017 (TCJA) made sweeping changes to the tax code, but many individual provisions were designed to expire after December 31, 2025. Without Congressional action, tax rates will rise, deductions will change, and exemptions will shrink.
Here's what you need to know about the coming changes and how to prepare.
What's Expiring
Individual Tax Rate Changes
| Bracket | 2025 Rate | 2026 Rate (Scheduled) | Change |
|---|---|---|---|
| Lowest | 10% | 10% | — |
| Second | 12% | 15% | +3% |
| Third | 22% | 25% | +3% |
| Fourth | 24% | 28% | +4% |
| Fifth | 32% | 33% | +1% |
| Sixth | 35% | 35% | — |
| Top | 37% | 39.6% | +2.6% |
Standard Deduction Changes
| Filing Status | 2025 | 2026 (Projected) | Change |
|---|---|---|---|
| Single | ~$15,000 | ~$8,000 | -$7,000 |
| MFJ | ~$30,000 | ~$16,000 | -$14,000 |
| Head of Household | ~$22,500 | ~$12,000 | -$10,500 |
Other Expiring Provisions
| Provision | 2025 Status | 2026 Status |
|---|---|---|
| SALT deduction cap | $10,000 limit | No limit (fully deductible) |
| Personal exemptions | $0 (suspended) | ~$5,500 per person |
| Child tax credit | $2,000 | $1,000 |
| Estate tax exemption | ~$13.6M | ~$6-7M |
| 20% QBI deduction | Available | Expires |
| AMT exemption | Higher thresholds | Lower thresholds |
Impact Scenarios
Example 1: Married Couple, $200,000 Income
| Item | 2025 | 2026 | Change |
|---|---|---|---|
| Gross income | $200,000 | $200,000 | — |
| Standard deduction | $30,000 | $16,000 | -$14,000 |
| Personal exemptions | $0 | $11,000 | +$11,000 |
| Taxable income | $170,000 | $173,000 | +$3,000 |
| Federal tax | ~$28,000 | ~$34,000 | +$6,000 |
Projected annual tax increase: ~$6,000 (21% higher tax bill)
Example 2: Business Owner with QBI
| Item | 2025 | 2026 | Change |
|---|---|---|---|
| Business income | $400,000 | $400,000 | — |
| QBI deduction (20%) | $80,000 | $0 | -$80,000 |
| Taxable income | $320,000 | $400,000 | +$80,000 |
| Tax on additional $80K | N/A | ~$31,600 | +$31,600 |
Projected annual tax increase from QBI alone: ~$31,600
Example 3: Large Estate
| Item | 2025 | 2026 | Change |
|---|---|---|---|
| Estate value | $15,000,000 | $15,000,000 | — |
| Exemption | ~$13,600,000 | ~$6,500,000 | -$7,100,000 |
| Taxable estate | $1,400,000 | $8,500,000 | +$7,100,000 |
| Estate tax (40%) | $560,000 | $3,400,000 | +$2,840,000 |
Projected estate tax increase: $2.8 million
Strategic Actions to Consider Now
Income Tax Strategies
| Strategy | Action | Potential Benefit |
|---|---|---|
| Roth conversions | Convert IRA to Roth in 2025 | Pay tax at lower rates |
| Accelerate income | Recognize business income sooner | Current lower brackets |
| Capital gains | Harvest gains while rates may be lower | Current LTCG rates |
| Stock option exercise | Exercise ISOs/NQSOs in lower brackets | Current rates |
| Bonus timing | Request bonus in 2025 vs. 2026 | Lower rates |
Estate Tax Strategies
| Strategy | Action | Deadline |
|---|---|---|
| Gift up to exemption | Transfer ~$13.6M per person | Before exemption drops |
| Fund ILITs | Use annual exclusion + exemption | 2025 |
| Complete GRATs | Lock in current transfer values | Before sunset |
| Spousal Lifetime Access Trust (SLAT) | Use exemption while maintaining access | Before 2026 |
Business Owner Strategies
| Strategy | Action | Benefit |
|---|---|---|
| Maximize QBI | Structure income to qualify for 20% deduction | Deduction expires |
| Entity planning | Evaluate S-corp vs. C-corp | QBI going away |
| Timing large sales | Accelerate if possible | Current rates |
| Retirement plan contributions | Maximize deductions at higher rates | Current rates |
Why Roth Conversions Make Sense Now
The 2025 Window
| Factor | Benefit |
|---|---|
| Lower current rates | Convert at 22/24% vs. 25/28% |
| Time for growth | More years of tax-free compounding |
| Rate certainty | Know current rates, future uncertain |
| IRMAA planning | Can spread conversions across years |
Conversion Planning Matrix
| Current Bracket | Conversion Priority |
|---|---|
| 10-12% | High—very favorable rates |
| 22% | High—rate increasing to 25% |
| 24% | Moderate-High—rate increasing to 28% |
| 32% | Moderate—rate increasing to 33% |
| 35-37% | Case-by-case—consider other factors |
Estate Planning: Use It or Lose It
Exemption Comparison
| Exemption Usage | Amount Transferred | Estate Tax Avoided |
|---|---|---|
| Full 2025 exemption (MFJ) | ~$27.2M | ~$10.9M |
| Full 2026 exemption (MFJ, est.) | ~$13M | ~$5.2M |
| Lost opportunity | ~$14.2M | ~$5.7M |
For families with substantial wealth, the difference between acting now and waiting could be over $5 million in estate taxes.
What Congress Might Do
Possible Scenarios
| Scenario | Probability | Planning Impact |
|---|---|---|
| Full extension | Moderate | Current planning remains optimal |
| Partial extension | High | Some provisions kept, others expire |
| Full expiration | Low-Moderate | Scheduled changes take effect |
| Rate increases beyond pre-TCJA | Low | Even higher taxes |
Planning Under Uncertainty
Principle: Make decisions that are good across multiple scenarios.
| Decision | Good If Rates Rise | Good If Rates Stay |
|---|---|---|
| Roth conversion at 22-24% | Excellent | Still good |
| Using estate exemption | Excellent | No harm |
| Tax diversification | Excellent | Still good |
| Aggressive income acceleration | Excellent | May regret |
Action Checklist for 2025
Before Year-End
- Calculate Roth conversion opportunity
- Review estate plan for exemption use
- Evaluate business entity structure
- Maximize QBI deduction
- Consider charitable giving strategies
- Project 2026 tax under new rules
- Complete any estate planning transfers
- Exercise stock options if beneficial
- Review income timing opportunities
- Accelerate deductions if higher rates coming
The Bottom Line
The TCJA sunset creates both urgency and opportunity. Whether Congress extends these provisions or lets them expire, the prudent approach is to take advantage of current favorable rules while planning for potential changes.
The families and business owners who act strategically in 2025 will be better positioned regardless of what happens in Washington.
The clock is ticking.
Ready to optimize your strategy before the deadline?
Schedule a Tax Strategy Review →
This article reflects tax law as of March 2025. Congressional action may modify these projections. Consult your tax advisor for guidance specific to your situation.
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