While the media focuses on the presidential election and the candidates’ tax proposals, it’s easy to overlook two key issues: Congress must vote on all new tax legislation and the IRS enforces those laws.
Regardless of our party affiliation, we can probably all agree that it seems impossible for our deeply divided government to decide on anything, and that makes sweeping tax legislation — as we saw with the Tax Cuts and Jobs Act in 2018 — rare.
So, what changes can we expect with the new Congress, and will any of the presidential candidates’ tax proposals be enacted into law?
The 2025 tax cliff
The biggest issue facing Congress is that most of the tax provisions passed in 2018 were temporary and are set to expire (or sunset) in what is being called the “2025 tax cliff.”
International accounting firm KPMG estimates that more than $4 trillion in tax reductions, primarily benefiting the wealthy, will expire if the TCJA is not extended, making 2025 one of the most critical years for tax policy since the original act was passed.
Congress will probably not be able to agree on new legislation or an extension, and many or all of the provisions could be allowed to expire. If that happens, our taxes will resemble what they were before the 2018 legislation was passed. However, not everyone will be negatively impacted if that happens.
Will my taxes go up or down?
One of the most significant changes is that the standard deduction will be cut in half, and many disallowed itemized deductions will return.
Therefore, if before the tax change, you itemized your deductions and wrote off your medical expenses, mortgage interest, state and local taxes, charitable deductions, job and other miscellaneous deductions, you will probably write off those deductions again instead of taking the larger standard deduction.
For example, if in 2023, you added up your itemized deductions, and they were $13,000, and you are single, you probably took the current standard deduction of $13,850…
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