The Times They Are A-Changin’

Now that tax season has passed for most Americans, it is an opportune moment to look ahead. As it stands, 2025 may be the final year the current tax laws remain in effect. While the Tax Cuts and Jobs Act (TCJA) is scheduled to sunset at the end of this year and roll back to the old code, we believe it is more likely that Congress will either extend the existing provisions or significantly revise them. Either way, early planning is essential.

Overview of Our Current Tax Code: The Tax Cuts and Jobs Act (TCJA)

As we have written about previously: enacted in 2017, the TCJA brought sweeping changes to the U.S. tax code, many of which are set to expire after December 31, 2025, unless new legislation is passed. Extending these provisions – or enacting new ones – would require Congress to pass legislation via the complex process of budget reconciliation (see our prior article for more details).

Key provisions of the TCJA scheduled to sunset include:

Income Taxes

• All tax rates, aside from the lowest, are set to rise, with the top bracket increasing from 37% to 39.6%.
• Income thresholds for each tax bracket will revert to lower amounts, resulting in higher effective tax rates for most Americans.

Deductions

• The standard deduction will be reduced.
• The current $10,000 cap on state and local tax (SALT) deductions will expire.
• The cap on mortgage interest deductions will rise from $750,000 to $1 million.

Alternative Minimum Tax (AMT)

• The thresholds for AMT will drop, potentially subjecting more taxpayers to this parallel tax calculation.

Gift and Estate Taxes

• The lifetime exemption for gift and estate taxes will be halved, falling from nearly $14 million to approximately $7 million per person.
  

New Proposals on the Horizon

Throughout the 2024 campaign, President Trump advocated for making the TCJA permanent and introduced additional tax cut proposals, such as:

• Reducing corporate tax rates on U.S.-manufactured goods to 15%
• Exempting Social Security benefits, tipped wages, and overtime pay from income taxes

In recent months, however, the conversation has evolved. Some proposals gaining momentum include:

• Raising the top income tax bracket to 39.6%, or even 40% for income over $1 million
• Eliminating favorable tax treatment for private equity carried interest
• Reducing tax benefits for professional sports team owners
• Increasing the SALT deduction cap to $25,000

Whether these ideas will be adopted remains uncertain. Notably, the direction of proposed changes reflects a shift toward populist, pro-working-class priorities. The SALT cap adjustment, in particular, is seen as a strategic move to secure Republican votes in blue-leaning states.

Tax Reform: A Complex Path Forward

While it might be tempting to assume that a Republican sweep in the 2024 elections guarantees swift tax reform, the reality is far more nuanced. In the House, Republicans maintain a narrow majority of 220-213 following recent special elections. Notably, Representative Elise Stefanik’s nomination for U.S. Ambassador to the United Nations was withdrawn in late March – a strategic move to preserve this slender margin.

In the Senate, Republicans hold a 53-47 advantage. However, the chamber’s 60-vote filibuster threshold makes passing major legislation through regular order virtually impossible. As a result, any significant tax law changes would need to move through the intricate budget reconciliation process.

Key aspects of the reconciliation process include:

• It may be used once per Congressional fiscal year – meaning potentially twice in the calendar year 2025.
• Historically, it has been the legislative vehicle for substantial measures such as the original TCJA, the Affordable Care Act, and the Inflation Reduction Act.
• It allows the Senate to bypass the filibuster and proceed with a simple majority, but still requires majority approval in both chambers.
• Given the narrow House majority, success will demand near-total unity within the GOP ranks.

Where the Legislative Process Stands Today

With just over eight months remaining before the scheduled sunset of the TCJA, meaningful progress has been made. Both the House and Senate recently passed budget framework bills – an essential precursor to any final reconciliation legislation.

The Senate approved its framework on April 7th. In the House, the process proved more precarious: Speaker Mike Johnson was compelled to delay the vote by a day to secure the necessary support, ultimately passing the bill by a narrow 218-216 margin.

While these framework bills mark an important milestone, significant challenges lie ahead. The House and Senate remain divided on both priorities and scale. 

For example:

• The House framework outlines $4 trillion in tax cuts offset by $1.5 trillion in spending reductions.
• The Senate’s version calls for $5 trillion in tax cuts with a comparatively modest $4 billion in spending cuts.

These figures are early negotiating positions, underscoring the differing fiscal philosophies within Congress. Over the coming months, Congressional leaders will work to reconcile these discrepancies and craft specific policy details – including decisions on which tax cuts will be preserved, expanded, or revised.

Economic conditions could also shape the pace and content of legislation. The recent market downturn following the announcement of new “Liberation Day” tariffs may heighten pressure on lawmakers, particularly if recession risks intensify. It’s worth noting that any new tax provisions could be made retroactive to January 1st, effective upon the bill’s passage, or implemented at the start of the following year – adding further complexity to both legislative negotiations and personal financial planning.

What You Can Do Now: Planning with Purpose

In a year of legislative uncertainty, it’s important to view your tax situation from multiple angles. While the final shape and timing of tax changes remain unclear, thoughtful, proactive planning today can help preserve flexibility and enhance tax efficiency.

Key considerations include:

1. Leverage Today’s Tax Opportunities
Where appropriate, take advantage of current laws while they remain in place. For example, converting a pre-tax retirement account to a Roth IRA allows you to benefit from today’s tax rates and recent market valuations, positioning assets for future tax-free growth.

2. Plan Ahead for Estate and Gift Taxes
With the lifetime gift and estate exemption scheduled to drop significantly after 2025, those with legacy planning goals should consider making strategic gifts this year. Early conversations with your advisor and estate attorney are essential, especially as year-end planning windows can quickly fill up.

3. Be Strategic with Timing
Potential changes in tax rates and deductions may influence when to take certain actions:

• If the SALT deduction cap rises, deferring state tax payments to 2026 could be beneficial.
• If your income tax rate is expected to increase, it may make sense to realize more income in 2025 or prioritize post-tax savings.
• If rates are likely to fall, consider deferring income.

Similar timing strategies apply to deductions, the acceleration/deferral of charitable donations, capital gains and losses, and the balance between taxable and tax-free income.

4. Stay Informed and Connected
We will continue to monitor these developments closely and share timely updates. While tax legislation may seem technical, its impact is personal – and we are here to help you navigate it with clarity and confidence.

We encourage you to connect with your Farther advisor to review your situation and identify opportunities aligned with your goals.

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