The tax season for the year is almost over, but there’s always going to be another tax season. Are you prepared for the next tax season? Whether you are a taxpayer or a tax preparer, the best way to prepare for the next tax season is to stay updated with significant tax changes. Especially tax provisions expiring by 2025.
Some specifically important tax laws are scheduled to expire by 2025. 2025 is closer than you think, and with the dates drawing nearer, planning the dates ahead is a high priority. It helps you leverage tax laws and reduces the potential impact of the changes that could occur when the tax laws expire. Here are some tax provisions expiring by 2025.
Tax Cuts And Jobs Act (TCJA)
The tax cuts and jobs act was enacted in December 2017. As the name implies, TCJA is a pivotal factor for corporate profit and job creation. TCJA is targeted at reducing statutory tax rates at almost every level of taxable income, shifting the threshold for several income tax brackets by implementing significant changes in areas such as estate tax, corporate tax, and individual tax.
The approximately 200 pages of the bill will ultimately impact Americans and the economy from January 1, 2018, through 2025. The Tax cuts and Jobs Act affects almost everyone in America, but its effects on you depend on your business and personal situations.
The highlight of the TCJA is the fact that it doubled the standard deduction and repealed the personal exemption. But, most importantly, The TCJA limited or eliminated several itemized deductions such as tax preparation fees, unreimbursed employee expenses, union dues, hobby expenses, and investment fees. The TCJA is one of the significant tax provisions expiring by 2025.
Here are several ways the TCJA can affect you as a taxpayer.
If you own a home in an area with high property taxes, the TCJA has created a new threshold of $10,000 on how much state and local tax you can deduct from your federal income taxes. However, taxes paid or accrued through doing business or trade are exempted from this limit. In addition, as a homeowner, you won’t be able to deduct the interest on home equity loans whether you itemize it or not.
Buying Or Selling A Home?
Under previous law, homeowners could deduct the interest on a mortgage of about $1,000,000 or $500,000 if they file separately as a married couple. However, with the TCJA, if you take out a mortgage between Dec.15, 2017, and December 31, 2025, you can only deduct interest on a mortgage up to $750,000 or $375,000 if you are filing taxes separately as a married couple.
The previous tax codes made homeownership less affordable for homebuyers in expensive areas. Although for most people, with the new TCJA, the difference between renting and owning a house is now much smaller from a tax standpoint.
The threshold for deducting medical expenses is 7.5% for the tax year 2021. However, if your adjusted income is $50,000, you’ll be able to deduct medical expenses that deduct medical expenses exceeding $3,750. This means that if you paid $5,000 in medical expenses and you’re when you itemize using Schedule A, you’ll be eligible to deduct $1,250 out of your $5,000 in medical expenses. This is also part of the tax provisions expiring by 2025.
Child Tax Credit reverts to Pre-TJCA by 2025
Under the rules established by the TCJA, taxpayers could claim Child Credit Tax of up to $2,000 for each child under the age of 17. However, the American Rescue Plan further increased the Child Tax Credit by up to $3,600 per child under the age of 6 and $3,000 per child from ages 6 to 17 for 2021.
However, in 2022, it will revert to the prior deduction provided by the Tax Cuts and Jobs Act (TCJA), where taxpayers will continue to enjoy Child Tax Credit for each child under age 17 until 2025 when the TCJA expires. This means that by 2025 when the TCJA expires, the Child Credit Tax will revert to its pre-TCJA form, which makes it one of the tax provisions expiring by 2025.
Premium Tax Credit
Some premium tax credits are also included in tax provisions expiring by 2025. The Affordable Care Act made millions of Americans eligible for a premium tax credit to help them pay for health coverage. The American Rescue Plan Act further boosted the premium tax credit with temporary subsidies initially slated to last only 2 years (2021 and 2022). However, with the Inflation reduction Act, the Affordable Care Act has been extended for 3 years more to enhance subsidies for people buying their health coverage.
The newly extended subsidies increase the amount of financial help available to eligible taxpayers and also expand the subsidies to middle-income earners priced out of coverage in previous tax credits.
New Market Tax Credit (NMTC)
The Newmarket Tax Credit is a laudable tax break for struggling communities, increasing job creation in struggling communities and spurring economic development, especially in areas that have been gravely affected by the COVID-19 pandemic. In addition, the NMTC has created approximately $8 in private investment in low-income communities for every $1 of federal funding, including directly financing over 5,400 businesses. The NMTC is also listed as one of many tax provisions expiring by 2025
Making a list of tax provisions expiring by 2025 may be smart, but taking advantage of them before it’s too late is the smartest! Of course, you don’t have to take any action if you don’t care about your taxes, especially if you’re the wealthiest man alive. But if you care about saving your hard-earned money from the claws of the IRS legally, you need a strategist to help you take advantage of tax break loopholes before and after they expire so that you can pay less taxes all the time!
Reach out to Team Tax Goddess Now and enjoy Tax Strategies Giveaway!