Tax provisions under the Tax Cuts and Jobs Act expire in 2025 absent Congressional action. Here’s what you need to know.
Small business owners experienced tax relief on many fronts with the passage of the Tax Cuts and Jobs Act (TCJA) in 2017. But many of the benefits, including the valuable Small Business Deduction, are scheduled to expire after Dec. 31, 2025, absent Congressional action. Here is a breakdown of some of those provisions.
The New Small Business Deduction
The most important change for small business owners, this provision of the tax law allows owners of pass-through businesses such as S-Corporations, LLCs, sole proprietorships, and partnerships to deduct up to 20 percent of their share of business income. The majority of NFIB members benefit from the Small Business Deduction.
Lowered Individual Income Tax Rates
The law lowers the tax rate for most brackets and reduces the highest marginal tax rate from 39.6 percent to 37 percent. Many small business owners file their income taxes as individuals rather than as corporations.
Fewer Households Subject to Alternative Minimum Tax
The tax law increased the alternative minimum tax (AMT) exemption, from $84,000 to $109,400 for joint filers, and also increased the phaseout of the exemption, from $160,900 to $1 million for joint filers. The Internal Revenue Service estimates that the number of AMT filers will decrease from about 10 million to about 1 million.
Increased Standard Deduction
The tax law nearly doubled the standard deduction, from $6,500 to $12,000 for single filers and $13,000 to $24,000 for joint filers during the 2018 tax year. This change simplified the tax code by allowing many filers to take the standard deduction rather than itemizing their deductions.
Increased Estate Exemption
The estate tax exemption doubled under the new law from $5.6 million to $11.2 million for 2018. The exemption will be adjusted annually for inflation until 2025.
Increased Child Tax Credit
The child tax credit doubled from $1,000 to $2,000 per qualified child under the age of 17. In addition to the tax credit increase, the income threshold where the phaseout of the credit begins was also increased—from $110,000 to $400,000 for joint filers.