Planning Ahead for Federal Tax Provisions Expiring Through 2025

In January 2022, Congress’s Joint Committee on Taxation published its annual list of expired or expiring tax provisions. This article covers expiring federal tax provisions from 2021 through 2031. It includes a list of six tax provisions that will expire at the end of 2023 and over 50 additional provisions set to expire over the next 10 years.

With the start of the tax preparation season for 2024 quickly approaching and tax planning for 2023 already underway for many taxpayers, here is a summary of several expiring or recently expired tax provisions that could significantly impact businesses and individuals over the coming years.

While only a handful of tax provisions are set to expire in 2023 and 2024, the numerous provisions under the TCJA set to expire at the end of 2025 hold particular importance for future tax planning purposes. With an upcoming Presidential Election in 2024, there is certain to be much debate over the coming years concerning the future of these tax provisions and whether or not Congress will agree to extend them or allow them to expire. Either way, the time to start planning is now.

Expired Tax Provisions Impacting Businesses

Before addressing those tax provisions that have yet to expire, let’s first review a few of the tax provisions that expired at the end of 2022 that are likely to have the most significant impact on federal income tax returns for 2023.

2022 Expiring Tax Provisions Impacting Businesses in 2023

  • 100% Bonus Depreciation Phase Out – The 100% bonus depreciation deduction, implemented in 2017 with the passing of the TCJA, allows businesses an immediate tax deduction for investments in qualifying short-lived assets, such as vehicles, furniture and manufacturing equipment. The phaseout starts in 2023, and will be completely phased out by 2027. For 2023, bonus depreciation will be reduced to 80% and then reduced by 20% each year thereafter.
  • Temporary 100% Deduction for Business Meal Expenses – In 2020, the Taxpayer Certainty and Disaster Relief Act created a temporary exception to the 50% limit on the amount businesses may deduct for qualified meals. This exception allowed businesses to deduct 100% of meal expenses from restaurants incurred in 2021 or 2022. This temporary increase expired at the end of 2022. For 2023, these meals are again subject to the 50% deduction limit.

2023 Expiring Tax Provisions Impacting Individuals

  • There were no expiring provisions impacting individual in 2023.

2025 Expiring Tax Provisions Impact Businesses

  • Qualified Business Income Deduction – Section 199A, also known as the qualified business income deduction, is a 20% deduction for income that individuals receive from a “pass-through” business. Unless later extended or made permanent, this 20% deduction will no longer be available after 2025.
  • Work Opportunity Tax Credit – This credit is available to employers for hiring and employing individuals from certain targeted groups is set to expire on December 31, 2025.
  • ERTC Claims – Refund claims for the Employee Retention Tax Credit for Q2, Q3 or Q4 in 2020 are due April 15, 2024 and for the Q1, Q2 or Q3 in 2021 are due April 15, 2025.

2025 Expiring Tax Provisions Impacting Individuals

It is important to be aware of and start planning for the mountain of tax provisions set to expire in 2025. Currently, 23 tax provisions from the TCJA relating to individual income taxes are set to expire on Dec. 31, 2025. This would result in tax hikes for most taxpayers unless some or all of these provisions are extended. Included below are some of the provisions that will likely impact individuals the most. For a complete list of the 23 expiring provisions, see the list published by the Joint Committee on Taxation.

  • Individual Income Tax Rates – After Dec. 31, 2025, the individual income tax rate schedule is set to revert to the pre-TCJA brackets and rates, adjusted for inflation. As a result, many households will likely see their taxes significantly increase in 2026.
  • Child Tax Credit – The TCJA doubled the tax credit to $2,000 and made limits to the refundable amount of up to $1,400 per child. The child tax credit will eventually drop, to $1,000 per child, beginning in 2026.
  • Alternative Minimum Tax Exemption & Phaseout Threshold – The TCJA increased the individual Alternative Minimum Tax (AMT) exemption amounts for tax years 2018 through 2025. These increased exemption amounts are reduced by 25% of the taxpayer’s alternative taxable income above $1 million for joint returns and surviving spouses and $500,000 for other taxpayers except estates and trusts. The increase to the AMT exemption amount and the phaseout threshold is set to expire at the end of 2025.
  • Standard Deduction – Under the TCJA, the standard deduction (currently $27,700 for married filing joint returns) has nearly doubled that of 2017. If this increase to the standard deduction isn’t extended, individual tax rates will revert to their 2017 amounts for 2026 ($16,000 projected). The personal exemption will also be reinstated ($5,300 projected).
  • Qualified Business Income Deduction – Section 199A, also known as the qualified business income deduction, is a 20% deduction for income that individuals receive from a “pass-through” business. Unless later extended or made permanent, this 20% deduction will no longer be available after 2025.
  • Limits on the State and Local Tax Deduction and the Mortgage Interest Deduction – Under the TCJA, the state and local tax deduction is limited to $10,000 per household, while the mortgage interest deduction is limited to interest paid on $750,000 of home acquisition debt. If allowed to expire, the state and local tax deduction would essentially be unlimited and mortgage interest deduction would be limited to interest paid on $1 million of home acquisition debt and $100,000 of home equity debt.
  • Charitable Contributions – Under current law, the percentage allowed for cash contributions increased to 60% of adjusted gross income. This will return to 50% if allowed to expire.
  • Job Expenses & Miscellaneous Deductions – This allowed deduction was removed under TCJA. It will return to prior law, which allowed expenses that exceeded the 2% of adjusted gross income floor.
  • Limitation on Excess Business Losses – Code section 461(l) was added by TCJA which limits the amount of business losses able to be deducted in one year. The limit is for losses exceeding $250,000 ($500,000 for married couples filing joint). The limitation applies at the principal or shareholder level. These losses are currently capped and carried forward to future years as a net operating loss.
  • Estate Tax Exclusion – The TCJA doubled the estate tax exclusion to $11.2 million per person in 2018. This exemption amount is adjusted annually for inflation and currently sits at $12.9 million for 2023 and will increase to $13.6million for 2024. However, after Dec. 31, 2025, this exclusion will revert to the per person limit used before 2018, adjusted for inflation, which is projected to be $6.4 million.

Adams Brown’s CPAs can help create a tax plan and ensure you make the most of your income and take advantage of all tax planning tools. Contact an Adams Brown advisor to discuss your tax situation.