Tasw Law Changes: Breaks And Suggestions

The Tax Cuts and Jobs Act (TCJA) of 2017 included significant changes to the tax code, many of which were temporary and set to expire at the end of 2025. These changes include the standard deduction, individual income tax rates, the state and local tax (SALT) deduction, the Child Tax Credit (CTC), the deduction for small business income, and alternative minimum tax (AMT). The expiration of these provisions will impact both individuals and businesses, with potential repercussions for the federal deficit. With the TCJA's expiration date approaching, tax policy has become a pivotal issue in the 2024 election cycle, and the outcome of the election will largely determine the fate of these provisions.

The Child Tax Credit

The Tax Cuts and Jobs Act (TCJA) of 2017 increased the CTC to $2,000 per child under the age of 17, up from $1,000 previously. This change was set to expire at the end of 2025, after which the CTC was expected to revert to $1,000 per child. The maximum credit that can be refunded also increased from $1,000 to $1,400 per child in 2018, adjusted for inflation and set at $1,700 in 2024. The TCJA also increased the income thresholds at which the credit phases out to $400,000 for married couples filing jointly and $200,000 for all other filing statuses.

During the pandemic, the CTC was raised even further to $3,600. Census data showed that it cut childhood poverty in half as many more families became eligible for the program. However, this increase was temporary, and the CTC is expected to revert to the pre-TCJA level of $1,000 per child unless Congress renews or amends the TCJA provisions.

It is important to note that the CTC is a nonrefundable credit, meaning that if the credit is greater than the amount of tax owed, the difference will not be paid to the taxpayer as a refund. Instead, the CTC is partially refundable up to $1,700 as of 2024.

The Standard Deduction

It is worth noting that the Standard Deduction is set to change in 2025 with the expiration of key provisions of the Tax Cuts and Jobs Act (TCJA). The TCJA, passed in 2017, nearly doubled the Standard Deduction, but these changes were enacted on a temporary basis and will expire on December 31, 2025. As a result, the Standard Deduction for single filers will decrease to $15,000, while for married couples filing jointly, it will decrease to $30,000.

The impending changes to the Standard Deduction highlight the dynamic nature of tax laws, which can vary from year to year. Taxpayers should stay informed about the latest tax law changes to maximize their tax benefits and effectively plan their financial strategies.

The Alternative Minimum Tax

The TCJA's AMT provisions are set to expire at the end of 2025, along with many other key provisions of the Act. This expiration will result in a significant decrease in the AMT exemption for married couples filing jointly, from about $140,300 to $110,075.

The fate of the TCJA beyond 2025 depends on the outcome of the 2024 election cycle. If the Republicans gain control of Congress, they are likely to attempt to extend the Act and further expand tax cuts. On the other hand, the Democrats are focused on reforming tax breaks for lower- and middle-income households and raising taxes on wealthier individuals and corporations.

Estate Taxes

The Tax Cuts and Jobs Act (TCJA) of 2017, signed into law by President Trump, included significant changes to the tax code. Many of these changes were temporary and are set to expire at the end of 2025. One of the most notable changes was the doubling of the estate tax exemption. If this provision expires, the exemption in 2026 will revert to pre-TCJA levels of around $5 million, adjusted for inflation. This means that the estate tax exemption for married couples will be approximately $14.3 million, compared to $28.6 million if the provision is extended.

The estate tax, often referred to as the "death tax" by Republicans, is a contentious issue. Republicans argue that it punishes wealth accumulation, especially in cases where farmers want to pass on their land through inheritance but end up needing to sell assets to cover the estate taxes. On the other hand, Democrats view estate and gift taxes as a way to address inequities and ensure that high-income earners pay their fair share in taxes.

The expiration of the TCJA's estate tax provision will have a significant impact on the richest taxpayers. According to estimates, households in the top 1% will pay an additional 3.1% of their income in taxes if all the provisions of the TCJA expire.

It remains to be seen whether Congress will extend, renew, or reform the TCJA's estate tax provision. Partisan control of Congress will play a crucial role in this decision. While Republicans aim to extend the TCJA and further expand tax cuts, Democrats are focused on reforming tax breaks for lower- and middle-income households and raising taxes on wealthier individuals.

The Earned Income Tax Credit

For the 2024 tax year, the criteria for qualifying for the EITC are as follows:

• For a single filer with no children, the Adjusted Gross Income (AGI) must be below $18,591.
• For a married couple with three or more children, the AGI cap is $66,819.

The maximum EITC credit amount varies depending on the number of qualifying children. For example, a single filer with no children can receive a maximum credit of up to $1,502, while a married couple with three or more children can receive a maximum credit of up to $6,935.

It is worth noting that taxpayers cannot claim the EITC if they have investment income over $11,600 or if they are married and filing separately. Additionally, the EITC is a refundable credit, meaning that if the credit amount exceeds the taxes owed, the taxpayer will receive the difference as a refund.

The EITC is an important tool for reducing the tax burden on low- and middle-income households, and it can result in significant savings for those who qualify. However, it is essential to stay informed about the specific requirements and limitations of the credit, as they may change from year to year.

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