Dear Clients and Colleagues,

As the tax year 2024 is closely coming to an end, we suggest that all our clients and colleagues consider potential year-end planning opportunities with respect to their investments, business holdings, and their overall individual wealth status with an eye towards tax planning strategies that may be available for both their short-term (2024) and longer-term goals. Following the November election, with Republicans taking over the White House and both chambers of Congress, there is much anticipation and expectation as to both extensions of expiring tax provisions as well as introduction of additional tax saving opportunities for individuals and businesses.

Many questions remain as to how far such extensions of the 2017 tax provisions can be achieved, in a revenue neutral manner, while also adopting many of the campaign promises made by President-Elect Donald Trump and the Republican Party. As one of the signature legislative achievements of the first Trump administration, the enactment of the Tax Cuts and Jobs Act of 2017 (hereafter referred to as “TCJA” or the “Act”) through the budget reconciliation process needed to limit the timeframe for certain revenue decreasing provisions favorable for taxpayers within a 10-year period. As a result, a number of the tax provisions adopted included a sunset/expiration date to fall within the 10-year budget forecast (ending in 2026) and included, among others, the following:

1. Reduction of Individual tax rates from the highest rate to 37%, which will currently revert to 39.6% unless extended.

2. Doubling of the child tax credit from $1,000 to $2,000 under TCJA, which will revert to $1,000 per child in 2026.

3. Elimination of Miscellaneous itemized deductions, including deduction for investment management fees paid. Such deductions are set to be restored in 2026 unless revenue from the elimination is needed to offset other revenue decreasing provisions.

4. State and local tax deduction (SALT) was also limited under TCJA to $10,000. Many states adopted laws enabling individuals with business interests in partnerships or S corporations to pay their state income tax on the income of such flow-through entities at the entity level, thereby producing a full deduction and avoiding the $10,000 limitation. The Trump administration has voiced support for reinstating the full SALT deduction in any new legislation adopted.

5. The individual estate and gift tax exemption rose to $10,000,000 (indexed for inflation to $13.99M in 2025) under TCJA but is set to be reduced beginning in 2026 to $5,000,000 (with indexing for inflation projected to be approximately $7,000,000 beginning in 2026).

6. For businesses, the TCJA introduced bonus depreciation deductions which are now phasing out and will fully expire for property placed in service after 2026. President-Elect Trump and the Republicans have expressed support for reinstating bonus depreciation to 100% in any new legislation.

7. In order to reduce the tax rate differential between operating businesses via flow-through structures (partnerships and S Corps) and the permanent reduction of the C Corporation tax rate of 21%, a 20% qualified business income (QBI) deduction was adopted but will sunset in 2026 unless extended. Given the Republicans’ desire to further reduce the corporate tax rate to 15%, some anticipation exists that the QBI deduction will need to be factored into any newly adopted tax legislation.

8. The TCJA extensively overhauled the taxation of operating business through foreign companies, resulting in more alignment of taxation to other countries with respect to distributions by foreign companies to U.S. corporate shareholders. It also introduced certain anti-deferral regimes (GILTI) that led to both individual and corporate shareholders needing to recognize offshore income regardless of whether such income is distributed. A deduction was also provided in such legislation that will be reduced from 50% to 37.5% beginning in 2026.

With some of these key provisions of the TCJA set to expire or change on December 31, 2025, as outlined above, this upcoming year will provide significant opportunities for lawmakers to reshape tax policies. This newsletter will summarize those key provisions set to expire and, where applicable, provide insight into potential legislative actions that could result. For reference, the summaries and analyses provided in this newsletter will be organized based on provisions that impact individual taxation, estate & gift taxation, and business taxation.

2025 Individual Tax Highlights

Individual Tax Rates

Marginal tax rates for individuals are set to revert to pre-TCJA levels when certain applicable provisions expire at the end of 2025. This would result in a minimum tax rate of 15% and a top tax rate of 39.6%.

Standard Deduction and Personal Exemption

For 2025, the standard deduction available to single filers is $14,600, while the standard deduction for married taxpayers filing jointly is $29,200. Since 2025 is the last year covered by the TCJA, these standard deductions are set to decrease to $8,300 for single filers and $16,600 for married taxpayers filing jointly in 2026.

The expiration of certain TCJA provisions will also prompt the return of personal exemption deductions, which were removed by the Act starting in 2018. Prior to their removal, the inflation-adjusted exemption amount in 2017 was $4,050 per household member, and the inflation-adjusted phase-out threshold amount was $261,500 (for single filers) and $313,800 (for joint filers). If reinstated, both the deduction and phase-out threshold amounts would be adjusted for inflation in 2026 and annually thereafter.

State and Local Tax (SALT) Deduction Cap

Prior to the passage of the TCJA, taxpayers who claimed itemized deductions on their Schedule A were able to report unlimited deductions for state and local taxes (SALT) paid during the tax year. These SALT deductions were later restricted to a $10,000 cap under the TCJA. In the months leading up to the election this November, the Trump administration expressed interest in eliminating the $10,000 cap, which is currently set to expire after 2025.

However, it’s important to understand that simply allowing the SALT cap to expire under the TCJA wouldn’t necessarily reinstate the full deduction for certain taxpayers. This is because the Alternative Minimum Tax (AMT) regime is also scheduled to revert to pre-TCJA status, the result of which would likely subject higher-income taxpayers to full AMT assessment, consequently eliminating the benefit of an expired SALT cap for such taxpayers.

Alternative Minimum Tax (AMT)

As the above suggests, the TCJA altered the AMT regime by substantially increasing the AMT exemption and the income thresholds that trigger the AMT exemption phase-out. The ultimate result of these changes meant fewer taxpayers were subject to AMT assessment under the TCJA, which was intended to lessen the impact of AMT after several prominent deductions, including the aforementioned SALT deduction, were reduced or eliminated under the Act.

If the changes to the AMT regime were allowed to expire at the end of 2025, it is projected that as many as seven million taxpayers who were not previously subject to the regime could face assessment starting in 2026. While there is no clear indication yet what the incoming administration will plan to do with respect to the AMT regime, it is clear that legislators will not evaluate their options in a vacuum: the reinstatement of other deductions and exemptions that result from the expiration of certain TCJA provisions will influence how, if at all, the AMT regime is modified.

Mortgage Interest Deductions

Prior to the enactment of the TCJA, taxpayers were able to deduct interest on mortgages totaling up to $1 million dollars. Following the Act’s passage, this mortgage limit was lowered to $750,000 of mortgage debt. However, beginning in 2026, the mortgage cap will again revert to $1,00,000, potentially increasing the available mortgage interest deduction for qualifying taxpayers that are claiming itemized deductions on their individual income tax returns.

Charitable Contribution Deductions

Charitable contribution deductions are currently limited to 60% of the donor’s adjusted gross income (AGI), but upon the expiration of certain TCJA provisions, this limitation will revert to 50% of AGI.

Miscellaneous Itemized Deductions

Taxpayers were previously allowed to claim miscellaneous itemized deductions provided those deductions surpassed 2% of the taxpayer’s AGI. The passage of the TCJA eliminated miscellaneous itemized deductions, which are set to return in 2026 when certain TCJA provisions expire at the end of 2025. Examples of expenses that previously qualified as miscellaneous itemized deductions included job-related expenses like travel, home-office expenses, and local transportation; tax-related expenses like return preparation fees; and investment-related expenses like counseling and management fees.

Child Tax Credit (CTC)

The CTC has undergone several changes in recent years to expand its accessibility to more taxpayers. In particular, the TCJA increased the maximum credit amount from $1,000 to $2,000 per child under the age of 17 (subject to an AGI phase-out) and provided a $500 credit for each nonchild dependent. For tax year 2021, the American Rescue Plan Act (ARPA) made the CTC refundable and further increased the credit amount to $3,600 for qualifying children under age 6 and $3,000 for other qualifying children under age 18. With the CTC set to revert to pre-TCJA amounts starting in 2026, both Republicans and Democrats will be focusing their discussions on how to modify and administer the credit moving forward.

Estate and Gift Tax Highlights

Increase of Annual Exclusion and Estate and Gift Exclusion Amounts

The TCJA temporarily increased the lifetime federal gift, estate, and generation-skipping transfer tax exemptions, with the increases set to expire at the end of 2025. If Congress does not extend or modify the exemptions, they will be cut in half beginning in 2026. While it is expected that the heightened exemption amounts provided under the TCJA will be extended in some form beyond 2025, there have been no significant discussions on how these extensions will impact overall budgetary planning. Given the uncertainty about whether or when Congress will address the estate and gift tax exemptions, taxpayers should consult with their estate planning attorneys to explore strategies to take advantage of the current exemptions and minimize their estate tax liability going forward.

Considering the above, the 2024 and 2025 annual exclusion gifting amount and lifetime exclusion amounts are as follows:

Annual Gifting Exclusion

• 2024                $18,000
• 2025                $19,000

Lifetime Estate & Gift Tax Exclusions

Type of Tax	2024 Rate	2024 Exemption	2025 Rate	2025 Exemption
Estate Gift GST	40% 40% 40%	$13,610,000 $13,610,000 $13,610,000	40% 40% 40%	$13,990,000 $13,990,000 $13,990,000

Taxpayers can reduce their total estate without affecting their lifetime exemption by making annual exclusion gifts. In 2024, the annual gifting exclusion is $18,000 per recipient. The annual exclusion amount will increase to $19,000 in 2025.

The Basic Exclusion Amount (i.e. lifetime exemption) is a unified exclusion amount for both gift and estate taxes, allowing a taxpayer to gift assets during their lifetime or transfer them at death without incurring gift or estate tax liability. The Generation-Skipping Transfer (GST) tax also provides for a similar exclusion. The TCJA increased the Basic Exclusion Amount beginning in 2018 from $5.59 million to $11.18 million. After indexing for inflation, the exclusion amount for 2025 is $13.99 million for each individual or $27.98 million for married couples.

The increased lifetime exemption established by the TCJA will remain available for transfers through 2025; however, absent legislative action, exemptions from estate and gift taxes will revert to pre-TCJA levels, adjusted for inflation, reducing the exemption to an estimated $7 million in 2026.

2025 Business Tax Highlights

Corporate Tax Rate

The 21% corporate tax rate remains permanent under current law. This rate provides a stable foundation for corporate tax planning and will not automatically change in 2025. Businesses operating as C corporations can rely on this rate for current planning purposes while monitoring legislative developments.

Importantly, the incoming administration has proposed a 15% corporate tax rate for domestic manufacturing, though details remain undefined. This proposal would require congressional action and consideration of: qualification requirements to be considered “domestic manufacturing” and implementation timing.

Qualified Business Income Deduction

Section 199A expires December 31, 2025, under current law. This significant change affects pass-through businesses in several ways. The expiration eliminates the 20% deduction for qualified business income, increasing the effective tax rate on such income from 29.6% to 37% (or 39.6% after 2025 when individual rates revert to pre-TCJA levels). This is currently one of the most significant scheduled changes for pass-through entities.

Corporate Alternative Minimum Tax (CAMT)

The Inflation Reduction Act was enacted in 2022 under the Biden administration and introduced the Corporate Alternative Minimum Tax (CAMT). Under the CAMT regime, corporations with over $1 billion in average annual financial statement income pay 15% AMT. Consequently, potential assessment of CAMT now requires companies to: monitor financial statement income; coordinate tax and accounting work; and track book-tax differences. While there are no concrete plans at this time to revise the CAMT, future modifications are possible as lawmakers negotiate other tax policy changes in 2025.

Business Interest Limitation

The TCJA imposed limitations on the deductibility of business interest expenses as a revenue-raising tactic to combat the rising price of its other measures. Specifically, Section 163(j) limits business interest deductions based on EBIT (earnings before interest and taxes). This calculation method restricts deductions more than the previous EBITDA standard that was employed before 2022, especially considering higher interest rates. While this provision has not expired, there has been bipartisan discussion for increasing these limitations in the future.

Bonus Depreciation

Under the TCJA, the rate of bonus depreciation was set at 100% for assets placed in service between late 2017 and the end of 2022. Beginning in 2023, bonus depreciation deduction percentages decrease by 20 percentage points per year with complete elimination by 2026. Thus, under current law, the phase-down continues as follows:

• 80% for property placed in service in 2024
• 60% for property placed in service in 2025
• 20% for property placed in service in 2026
• Zero after 2026

Importantly, there has been bipartisan support for the reintroduction of the 100% bonus depreciation deduction, which likely will be a discussion point for future tax legislation in 2025 and beyond.

Research and Development

Beginning in tax year 2022, the TCJA imposed a capitalization and amortization requirement for R&D expenditures that were claimed by businesses as deductions. Specifically, businesses were required to capitalize their R&D costs and amortize them over five years if they were incurred domestically, or fifteen years if the costs were incurred outside the US. However, both parties have expressed a desire to return to pre-TCJA treatment of R&D expenditures, wherein businesses were able to immediately deduct certain research and experimentation expenses under Section 174.

International Considerations

For clients with international operations and investments, TCJA made significant changes to the overall taxation of offshore income earned by foreign companies owned and controlled by U.S. shareholders, with the overall result being that both US individuals and companies can no longer defer U.S. taxation associated with most if not all of their annual foreign profits earned by the foreign companies. There are various structuring techniques and strategies that may be available to mitigate the U.S. tax on such income but requires further detailed analysis with your tax advisor. The GILTI tax rate for US corporations (or individuals that have made an election under section 962) will increase from 10.5% to 13.125% after 2025 due to the reduction of the 50% GILTI deduction to 37.5%. For clients with foreign derived intangible income (“FDII”), the deduction will decrease from 37.5% (resulting in 13.125% effective corporate rate) to 21.875% (resulting in 16.406% effective corporate rate).

The Trump Administration has indicated interest in eliminating the double taxation that individual Americans may incur when living abroad, beyond the current benefit provided under the Foreign Earned Income Exclusion relating solely to earned income.

What’s Next:

We continue to closely monitor developments from Capital Hill and the new Trump Administration with respect to the direction that any future tax legislation may take. The process will undoubtedly result in some of these expiring provisions being extended and others, where either the cost of extension is too high or insufficient support exists within Congress, being excluded from future legislation. For now, clients should focus on what the law currently provides for and is mandated to change in 2026 and make plans accordingly since future changes to tax legislation remain difficult to predict.

While certain expiring provisions (i.e. extension of estate/gift exemption, child tax credit, SALT deduction reversion), along with some proposed changes to the tax law offered during the Trump campaign (i.e. no taxation on tips or overtime, no tax on social security) may have a higher level of importance and likelihood of being included in the passage of tax legislation in 2025, the need to pass such legislation with revenue neutrality will have a strong influence on which provisions survive that process and at this stage, cannot be relied upon.

For further assistance in assessing those changes and expiring provisions that are set to take place under current law, please consult with your tax counsel at DUGGAN BERTSCH in establishing strategies to mitigate your individual and business-related taxes for 2024 and future planning for 2025 and beyond.