Navigating financial planning amidst a changing political landscape can be a daunting task. As a new administration takes the helm, shifts in policies, regulations, and economic strategies are often on the horizon, potentially impacting markets and individual finances. Preparing for these changes requires a forward-thinking approach, combining vigilance with adaptability. Understanding the potential policy changes, staying informed about economic forecasts, and reassessing personal financial goals can be helpful steps in potentially protecting and optimizing your financial health.
In 2017, Congress passed the Tax Cuts and Jobs Act (TCJA), a sweeping package of tax reforms that included lower rates for businesses and individuals. The law’s business tax reforms, including a lower corporate income tax rate, were made permanent. However, tax cuts for individuals were set to sunset after 2025.
“This means a wide variety of tax provisions are scheduled to change after this year if Congress does not act to extend them,” highlights Sammons Financial Group’s Associate Vice President and Head of Government Affairs Tyler Brown. “Among other things, this would mean higher individual income tax rates for most Americans, a much lower standard deduction and Child Tax Credit, and many more Americans becoming subject to the Gift and Estate Tax. Over the coming months, Congress and the incoming Trump Administration will be focused on determining what provisions to extend from TCJA and how to pay for these tax extensions.”
According to Brown, provisions that are likely to change include but are not limited:
Provision | 2025 (TCJA) | 2026 (Post-TCJA Expiration) |
---|---|---|
Gift and Estate Tax Exemption Threshold | $13.99 million for individuals; $27.98 million for married couples (indexed to inflation) | Roughly half of 2025 levels |
Standard Deduction | $15,000 for individuals, $30,000 for married couples (indexed to inflation) | Roughly half of 2025 levels |
Child Tax Credit | $2,000 per qualifying child (under age 17) | $1,000 per qualifying child |
Deduction for qualified business income (QBI) | 20% deduction applicable for pass-through businesses | Would be eliminated |
State and Local Tax Deduction | $10,000 cap | No cap |
2025 Income Tax Brackets (TCJA) | 2026 (Post-TCJA Expiration) |
---|---|
10% | 10% |
12% | 15% |
24% | 28%) |
32% | 33% |
35% | 35% |
37% | 39.6% |
“With the election of President Trump and a Republican majority in both chambers of Congress, it is increasingly likely that Congress will extend the vast majority, and possibly all, of the Tax Cuts and Jobs Act this year. Congress is expected to use a complex process called “budget reconciliation” to extend these policies with only a simple majority in the Senate, meaning they will not need any support from Democrats,” adds Brown. “However, extending the entire package would cost trillions of dollars in lost revenue, presenting questions regarding how – if at all – Congress will choose to pay for the extensions. They may decide to allow certain aspects of TCJA to expire to reduce the cost.”
According to Brown, given political pressure and their high cost, it is possible that Congress will allow the expiration of certain provisions that primarily benefit wealthier taxpayers, such as the higher Estate and Gift Tax exemption threshold and income tax rates for the top brackets.
“Congress may look to increase tax revenue in other areas in order to offset the cost of TCJA extensions. It remains too early to know exactly what Congress will consider, but there has been speculation of using tariffs, spending cuts, and repealing certain tax credits and renewable energy incentives created during the Biden Administration,” shares Brown.
Another challenge that may affect the likelihood of changes is the narrow margins Congressional Republicans face have in both the House of Representative and the Senate. “In the House, Republicans have a historically slim majority and will need almost total unity to advance legislation along party lines,” states Brown. “Likewise, Republicans will only be able to lose a few votes in the Senate. This provides significant leverage for rank-and-file members of Congress to exert influence and will make it especially difficult to pass such a large and complex legislative package.”
Brown further highlights that one area where this may present challenges for Republican legislators is the State and Local Tax Deduction, which was capped at $10,000 in the Tax Cuts and Jobs Act. “Republicans representing high tax states oppose this cap,” says Brown. “Given the slim Republican majority in the House of Representatives, this group of lawmakers will have the power to prevent any legislation from passing if it extends this cap. As a result, it is very possible that the cap is allowed to expire or at least raised to a higher number. Eliminating or raising the State and Local Tax Deduction cap would significantly increase the cost of the legislation.”
While an extension of most provisions in the Tax Cuts and Jobs Act is likely, Republicans may not be able to extend everything. “It is very possible that some individuals, especially those in the higher income tax brackets, will see their tax burden climb in 2026,” states Brown.
It's important to emphasize the value of staying proactive and informed. With policy shifts likely on the horizon, your ability to adapt and adjust can be key to financial success. Remember to continuously engage with updated tax laws, consult with financial professionals to reassess your financial strategies regularly. Being prepared means not only mitigating potential risks but also potentially capitalizing on opportunities brought about by new regulations.
Neither Midland National nor any financial professionals acting on its behalf, should be viewed as providing legal, tax or investment advice. Please rely on your own qualified tax professional.
The opinions and ideas expressed by Tyler Brown are his own. The opinions are not indicative of future performance or success and may not be representative of the experience of other individuals. Tyler Brown was not compensated for his testimonial in this material.
The term financial professional is not intended to imply engagement in an advisory business in which compensation is not related to sales. Financial professionals that are insurance licensed will be paid a commission on the sale of an insurance product.
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