Tax Legislation Updates with TCJA Sunset Looming

Congress faces critical tax policy decisions as key provisions under the Tax Cuts and Jobs Act of 2017 (TCJA) are scheduled to sunset at the end of 2025. With a Republican-controlled Congress and President Trump’s return to office, tax policy discussions are expected to be among pressing topics in D.C. Below, we break down the major issues likely to shape the upcoming tax legislation.

TCJA Key Provisions Sunsetting

The TCJA was one of the most significant tax bills in a generation, ushering in across-the-board tax reductions of $1.5 trillion for businesses and individuals. However, under congressional budget rules, many of the TCJA changes are not permanent, and some provisions expire at the end of 2025.

The following selected TCJA provisions are scheduled to expire at the end of this year:

• Individual Tax Rates. Five of the seven individual tax brackets were reduced by the TCJA, including the top tax rate (39.6% to 37%). Without tax legislation this year, higher tax rates will return and bring increases to most, if not all, taxpayers.
• 20% Qualified Business Income Deduction. The deduction on qualified business income brought tax relief to many pass-through business owners. With the sunset, there would be no deduction available to these owners.
• Standard Deduction. The standard deduction for individual taxpayers was doubled by the TCJA (and indexed for inflation) and is now approximately $30,000 for a married couple filing jointly. It would revert to pre-TCJA levels, adjusted for inflation, without any legislative action this year.
• Child Tax Credit. The child tax credit was doubled from $1,000 to $2,000, which will expire on December 31, 2025.  
• Estate Tax Exemption. The estate tax exemption was doubled by the TCJA beginning in 2018 and, with inflation adjustments, is now $13.99 million per individual. This is scheduled to expire, and the exemption would be approximately 50% of current levels starting in 2026.

Notably, the corporate tax rate of 34% was reduced to 21% by the TCJA. This reduction is not scheduled to sunset and will remain at 21% next year.

Plans for Tax Legislation Under Reconciliation

Republican lawmakers are using “reconciliation” to pass a tax bill this year, much like it was utilized to enact the TCJA. Reconciliation is a complicated two-step process, generally taking months to navigate through Congress. The first part is to get Congress to pass a budget resolution, then the actual tax bill is written and approved by Congress. At this point, both the House and Senate support a tax bill but differ in their approach:

• The House intends to pass one reconciliation bill that covers tax provisions, border security, energy, debt ceiling and other federal spending. The House Budget Committee approved its budget resolution on February 13, 2025, calling for net tax cut savings of $4.5 trillion. This resolution was then passed by the full House on February 25, 2025 with a narrow 217-215 vote.
• The Senate wants now to enact two reconciliation bills: a smaller bill on border security, defense, and energy; then later, a larger reconciliation bill on taxes and other spending. The Senate passed its first smaller reconciliation bill on February 21, 2025.
  
  With the House passing its larger resolution, the Senate must decide whether to vote directly on the House resolution or go to a House-Senate conference to craft a joint resolution to be approved by the House and Senate. Congressional leaders will decide their next steps in the coming days. These are the first hurdles on the road to reconciliation.   

Major Provisions in 2025 Tax Bill

While still early in the process, we can expect the tax bill to contain these main sections:

1. TCJA Extension. It is likely the TCJA provisions will be part of the bill. And these provisions could, in fact, be extended for 10 years.

This includes the $10,000 SALT (state and local tax) deduction limitation. President Trump has indicated support for raising the cap. Negotiations would suggest a potential increase to $20,000-$50,000 for joint filers, with possible annual adjustments for inflation. Any modification will need to be balanced against the tax cost of the change.

Some TCJA business provisions have already expired, and it is expected that the tax bill will return these items to their prior favorable treatment. These provisions include the following:

• The deduction for research expenditures under Section 174, which was required to be capitalized and amortized starting in 2022, is expected to return to annual expensing.
• The 100% bonus depreciation on qualifying capital expenditures is currently at 40% for 2025 and expected to return to 100% in the bill.
• The interest expense deduction limitation, which was increased starting in 2023 due to depreciation and amortization expenses being excluded in the calculation, is expected to see these expenses added back. This would allow for higher interest deductibility.

2. Tax Proposals from 2024 Campaign. During his campaign, President Trump outlined several ambitious tax policy proposals, most notably: eliminating tax on tips; not taxing overtime pay; and not taxing Social Security benefits. He also highlighted the potential for cutting the corporate tax rate from 21% to 15%. (Many have noted that the proposal to not tax Social Security benefits might be difficult to include in this bill, as Social Security changes are precluded from reconciliation legislation.)

3. Other Provisions. There are several other provisions that various Congressional leaders would like to include in a tax bill. Some ideas being considered are:

• An Estate Tax Repeal, which has growing support in Congress, including from top leadership.
• The Personalized Care Act, which would expand Health Savings Accounts (HSAs) by decoupling them from high-deductible plans and allowing contributions by Medicare/Medicaid recipients. Further, some lawmakers are advocating for a Universal Savings Account (USA) that offers a flexible, tax-savings plan with fewer restrictions than traditional retirement accounts.
• Enhanced Rules for Section 1202 treatment, meaning expanded tax savings with qualified small business stock (QSBS).
• Increased Charitable Contribution Incentives, which includes a possible non-itemized deduction of up to one-third of the standard deduction for donations made in 2026 and 2027. The proposal aims to incentivize charitable giving and support not-for-profit organizations. Lawmakers have stated that expanding this deduction could encourage more Americans to contribute to charitable causes, particularly in light of declining donation rates.

4. Tax Offsets. The projected $4.5 trillion tax cut under the House budget resolution is a net amount. There is the possibility to see several tax offsets. For instance, the tax benefit of “carried interests” could be eliminated. Another proposal is to impose excise taxes on major colleges and universities that do not direct enough relief from their large endowment funds to student scholarships and tuition support. In addition, lawmakers have proposed spending cuts and adding new tax cuts to offset the revenue loss projected by extending certain TCJA provisions.

As Congress deliberates the future of TCJA provisions, taxpayers should prepare for potential tax law changes this year. While some provisions are expected to be extended, negotiations will determine which revenue-raising measures and new incentives are included. At Sikich, we will continue to follow this legislation. Please contact your Sikich tax advisor with any questions.

About Our Authors

Tom Bayer, CPA, CExP, has specialized expertise in the areas of business succession planning, tax planning and compliance, and business advisory. He has deep experience providing a range of accounting, tax, and business advisory services to commercial clients across industries.

Jim Brandenburg, CPA, MST, possesses extensive experience and knowledge in corporate and partnership tax law, mergers and acquisitions, and tax legislation. His expertise includes working with owners of closely held businesses to identify tax planning opportunities and assist them in implementing these strategies.