Signed into law on December 22, 2017, the Tax Cuts and Jobs Act (TCJA), known as the Trump tax cuts, contains several changes to individual tax rates.
However, they will expire after December 2025. Barring congressional action, tax rates for 2026 will revert to the rates payers were subjected to before the change.
The tax change is coming and largely depends on which party controls the White House and Congress after Inauguration Day 2025. The cuts can be kept by Republicans or rewritten by Democrats. Also, a divided government could agree on a bipartisan compromise. However, the change will affect taxpayers of every political persuasion.
Consequently, Julio Gonzalez, CEO and Founder of Engineered Tax Services, Inc., warns of a “harsh reality” facing Congress. “We are in a situation in which many American families and businesses are hanging on by a thread,” Gonzalez said. “Letting the non-permanent provisions of the TCJA expire could be catastrophic to our overall economy and the well-being of many working families.”
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Under the TCJA, the standard deduction nearly doubled for all filing statuses. Consequently, fewer people itemize deductions and instead opt for the standard deduction. Also, the TCJA significantly changed the standard deduction amounts for individuals and families.
The standard deductions before the 2017 Tax Year were $6,350 for single filers and $9,350 for heads of households. Also, it was $12,700 for those married filing jointly. These amounts jumped dramatically after the TCJA (2018-2025 tax years).
The standard deductions for the 2023 tax year are $13,850 for those single or married filing separately, $27,700 for couples filing separately and surviving spouses, and $20,800 for heads of household.
Similarly, the TCJA lowered income tax rates across and restructured bracket spans. With the exception of those who were at 10% ( $11,000 or less) and 35% ($231,251 to $578,125) tax rate levels before 2018, all income tax rates decreased when the new laws came into effect.
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Consequently, the top individual tax rate dropped from 39.6% to 37% under the terms of the TCJA. Also, the 33% bracket fell to 32%, the 28% bracket to 24%, and the 25% bracket to 22%. In addition, the 15% bracket fell to 12% under the TCJA.
American taxpayers with considerable estates also benefited from larger exemptions. The estate tax exemption jumped in 2017, allowing taxpayers with sizable estates to benefit when transferring property to heirs.
In addition, the Trump tax plan doubled the lifetime estate tax deduction from $5.49 million for individuals to $11.18 million. This higher limit, which allows property-holding families to transfer more tax-free money to their heirs, has increased yearly since 2017.
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The exemption, adjusted for inflation, was $12.06 million in 2022, which increased to $12.92 million in 2023. Consequently, an individual can pass on up to $12.92 million in assets without being subject to federal estate or gift taxes. This exemption effectively allows a combined exemption of $25.84 million for married couples.
However, Americans will have to reassess their spending and tax returns. They must face new financial decisions when standard estate tax and deductions revert to pre-TCJA levels on January 1, 2026.
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