Opinion: Preparing for the sunset of the Tax Cuts and Jobs Act

Brett Hodges

Not every sunset is beautiful. I’m not referring to the gorgeous southern Missouri sunsets that we all know and love, but rather the sunset of the Tax Cuts and Jobs Act of 2017, which is scheduled to expire on Dec. 31, 2025. There are a number of changes that tax planners, business owners and individuals need to be aware of. The following is a brief overview of some of the most important changes that will occur, assuming Congress fails to pass legislation making these provisions permanent.

Increases in income tax rates
Under the Tax Cuts and Jobs Act, tax rates were reduced for almost every tax bracket. However, these changes were not permanent and these rates are set to revert to pre-Tax Cuts and Jobs Act levels. These rate increases vary wildly in amount. For individuals in the 10% marginal tax bracket, there will be no change. Other individuals can expect anywhere from a 1%-4% increase in their tax rates.

Reduction to the standard deduction
For those individuals who rely on the standard deduction to reduce their taxable income, the sunset of the Tax Cuts and Jobs Act will provide an unpleasant surprise. Starting in 2026, the standard deduction will be cut in half for both individual filers and those who are married and filing jointly. For many, this will likely result in an increase in their taxable income.

Expiration of business income deduction
Perhaps one of the most widely touted provisions of the Tax Cuts and Jobs Act was its reduction of the corporate tax rate to 21% from 28%. This provision will remain unchanged once the Tax Cuts and Jobs Act expires. However, another less popular but equally important provision for business owners is the qualified business income deduction, which allows pass-through businesses (such as partnerships and S corporations) to deduct up to 20% of their qualified business income. This provides a substantial benefit to many small-business owners, and it is set to expire in 2026. This expiration means that many people will need to reevaluate the manner in which their business is structured and taxed.

Reduction in estate and gift tax exemption
Starting Jan. 1, 2026, there will be a substantial reduction to the lifetime estate and gift tax exemption amounts. Currently, individuals are able to avoid tax on assets gifted during life or bequeathed at death up to $13.61 million. Once the Tax Cuts and Jobs Act expires, this exemption amount will be cut in half. This reduction is currently estimated to place the exemption amount at around $7 million per person. For many, this will not pose a problem, but for wealthier individuals, immediate action will need to be taken to avoid exposure of assets to this 40% tax. Those who desire to make large gifts during their lifetime or who have a highly valued estate will need to formulate a plan to avoid tax on amounts in excess of the exemption amount. Unfortunately, merely having an estate valued at less than the exemption amount is not necessarily sufficient to avoid this tax, as the exemption amount also takes into account the gifts an individual makes over the course of their lifetime. It is vital to contact an estate planning attorney now to discuss the options available to shield assets from this tax. Many estate tax avoidance techniques require transfers to be made in both 2024 and 2025 in order to maximize their tax avoidance potential.

Although it’s impossible to summarize every single one of the changes caused by the expiration of the Tax Cuts and Jobs Act in such a short article, a familiarity with some of these important changes will hopefully be sufficient to put taxpayers and tax professionals on notice that the tax world is about to be very different.

Brett Hodges is an attorney with the law firm of Carnahan Evans PC. He can be reached at
bhodges@carnahanevans.com.