When Do the Trump Tax Cuts Expire?

A signature legislative achievement of Donald Trump’s presidency was the Tax Cuts and Jobs Act passed by Republicans in 2017. While touted as long-term tax relief, many provisions benefiting individuals in the law contained sunset clauses causing them to expire in 2025. Examining which tax changes are temporary provides clarity on how Trump’s tax overhaul evolves after 2025.

Introduction

The Tax Cuts and Jobs Act made sweeping changes to the tax code, lowering rates across income brackets and expanding several deductions and exemptions [1]. However, the law was crafted to comply with budget rules that necessitated expiration timeframes for large portions benefiting individual taxpayers.

In this article, we will analyze:

• Which specific individual tax provisions are set to expire
• Tax changes in the law made permanent
• The expected impact of reversals in 2025
• Strategies individuals can consider before sunset clauses take effect

Understanding the temporary nature of many Trump tax cuts is crucial for future financial planning.

Overview of Major Temporary Individual Tax Provisions

Most individual tax changes under the Tax Cuts and Jobs Act are scheduled to expire or phase down starting in 2025 [2]:

• Lower income tax rates across all brackets will revert to 2017 levels.
• The doubled standard deduction amounts will return to pre-overhaul levels.
• Elimination of personal exemptions for dependents will be reversed.
• Increased child tax credits will lower from $2,000 back to $1,000.
• Higher limits on itemized deductions like SALT will expire.

Major Permanent Business and Corporate Tax Changes

In contrast to individual provisions, several key Trump tax cuts were made permanent [3]:

• The corporate tax rate was permanently reduced from 35% to 21%.
• Business expensing deductions were permanently enhanced.
• A territorial international tax system now indefinitely applies.
• Estate tax exemption doubling continues infinitely.

So most tax relief benefiting businesses carries forward past 2025 unchanged.

Projected Impact of Sunset Provisions Taking Effect

Absent legislative action to extend them, sunset clauses will have major impacts [4]:

• Individual income taxes will spike as rates revert higher and deductions drop.
• Household tax savings from the law may shrink by half or disappear entirely.
• A typical middle-class family could see tax bills rise by $2,000.
• Wealthier earners face smaller increases due to other permanent provisions.

Sunset clauses largely reverse individual tax relief while locking in corporate cuts.

Strategies To Consider Before 2025 Expirations

Some tax planning moves can help individuals maximize savings before expires kick in [5]:

• Accelerate income into lower tax years before rates rise again.
• Shift deductions to later years when they offset higher rates.
• Prepare with higher withholding to avoid shortfalls and penalties.
• Consider retirement plan conversions while rates remain low.

Proactive strategies focused on the long term horizon can mitigate surprises down the road.

Outlook for Possible Extension of Cuts

Republicans will likely advocate renewing individual tax cuts as the 2025 deadlines near:

• But extending cuts risks adding significantly to budget deficits unless offset with spending cuts or other tax hikes [6].
• Making cuts permanent could cost over $1 trillion in additional lost revenue over 10 years [7].
• Reaching compromise on extensions remains uncertain given divided government.

While likely attempted, political dynamics will determine if temporary provisions are made permanent.

Conclusion

Donald Trump’s tax overhaul enacted temporary individual tax relief alongside permanent corporate cuts. With many changes set to expire or phase down starting in 2025, tax planning should assume higher future rates and smaller deductions. Absent bipartisan action, the majority of Trump tax benefits for individuals will reverse course later this decade. But with ample foresight, taxpayers still have opportunities to mitigate impacts before the sunsets take effect.

References

[1] https://www.jct.gov/publications/2017/jcx-62-17/

[2] https://www.cpapracticeadvisor.com/tax-compliance/news/12407216/how-the-trump-tax-cuts-sunset-provisions-work

[3] https://budgetmodel.wharton.upenn.edu/issues/2022/8/26/tcja-expiration

[4] https://budgetmodel.wharton.upenn.edu/issues/2022/5/9/sunrise-sunset-the-future-of-tcja

[5] https://www.kiplinger.com/taxes/602109/11-ways-to-prepare-for-the-2025-tax-hikes

[6] https://budgetmodel.wharton.upenn.edu/issues/2021/5/19/tcja-expiration-effects

[7] https://budgetmodel.wharton.upenn.edu/issues/2021/5/27/update-cost-to-make-tcja-permanent