Get ready, America. With the upcoming elections big changes may be instore for tax laws.
Our Current Situation
The Tax Cuts and Jobs Act (TCJA) was initiated in 2018 and made huge changes to tax laws. However, most of the provisions are set to expire December 31, 2025.
As this date nears many may wonder what the federal tax bill will look in 2026. The outcome of November’s presidential and congressional election will determine the fate of the provisions that are set to expire. Other changes and new tax laws may also be coming for America.
Corporate Vs. Individual Taxes
The TCJA reduced the maximum corporate tax rate down to 21% from 35% and the individual rate down to 37% from 39.6%. The individual rate cut is scheduled to expire in 2025 and the corporate tax cut has no expiration date. Although, tax legislation could still change the corporate tax rates.
Not only did the TCJA lower tax rates, it made many other revisions on tax law. The TCJA increased the standard deductions for individuals, therefore, drastically reducing the number of individuals who can benefit from itemizing their expenses. Individuals who have total allowable itemized expenses such as, charitable contributions and medical expenses, that exceed the standard deduction can benefit from this, as this could help to further reduce the total taxable income.
Certain itemized deductions were eliminated, others were limited through 2025.
The expiration of Section 199A qualified business income (QBI) deduction could have the biggest affect on small business owners. Noncorporate pass-through entities are currently able to write-off up to 20% of QBI.
Unless legislation extends provisions, many individuals’ tax bills will be affected in 2026.
Possible Outcomes
The presidential election is only a few months away, as well as the balance of power in Congress, this will determine the future of the TCJA. Four possible outcomes that could occur:
- TCJA provisions scheduled to expire will all expire at the end of 2025.
- TCJA provisions scheduled to expire will all be extended past 2025.
- Some TCJA provisions will expire, while others will be extended.
- Some or all of the TCJA provisions set to expire will expire — and new laws will be passed that provide different tax breaks and/or different tax rates.
Your 2026 tax bill will be based on which one of these possible outcomes become reality and whether your tax bill went up or down in 2018 due to the implementation of the TCJA. Factors that determined your tax bill in 2018 included your filing status, where you live, and whether you have children or other dependents.
The candidate that wins the presidential election and who is controlling congress will have a big effect on your tax situation. The Democratic and Republican parties have different views when it comes to taxes. Proposals can only become a law if tax legislation passes both houses of Congress and is signed by the President (a presidential veto can be overridden if there are enough votes.)
The Future of Tax
As December 31, 2025, nears and TCJA provisions come closer to expiring it is important to think about changes that may occur and moves that you can make if the tax law does change. We will keep you informed on what is instore for you, tax-wise and we are here to answer any questions that you may have.
