Time to talk taxes: The TCJA, Child Tax Credits, and Tax Brackets

As Quarter Four draws near for many investors, clients may be thinking of preparing for their year-end discussions on tax preparations. Advisors may want to take time to talk with them about the potential for tax changes that 2025 could bring. Clients may think that the coming presidential election could be their best chance for tax relief. But there could be an option for a revival in the Tax Relief Bill that had surprising bipartisan support in the Spring of 2024.
‍

The TCJA: The largest difference between the two candidates in terms of changes to tax law that would impact individual investors’ concerns the Tax Cuts and Jobs Act (TCJA) of 2017. It is currently set to sunset at the end of 2025. The TCJA provided many tax benefits to workers including expanding tax brackets, increasing the standard deduction, among others. Former President Trump has made clear he would extend the TCJA. Vice President Harris has said she would extend the personal income tax cuts for those making less than $400,000 per year but increase taxes on those making more income. Additionally, Trump and Harris differ on taxation of Social Security income, with Trump seeking to eliminate taxes on benefits and Harris opting to raise taxes on those with higher income receiving benefits under that program.^[1]
‍

Child Tax Credits and Depreciation: As to the Tax Relief for American Families and Workers Act of 2024 it passed the House of Representatives with strong support from both parties. The final vote was 357-70 vote. It fared less well in the Senate where a near complete divide stalled action on the bill. There proponents of the bill could not get enough support to prevent opposition to the bill from killing its passage by filibuster. One legal analyst noted that Senate Majority Leader Schumer may have kept hope alive for the bill by being among those voting against closing discussion of the bill. This could allow him to bring the bill back for a vote later in the year, assuming Congress continues to keep working up to and after the election.
‍

If that Tax Bill did pass, it could have some important opportunities for businesses to get tax relief via deductions for research and business interest expenses and potentially restoring depreciation options. Additionally, the Tax Bill could extend child tax credit benefits to many families, among other changes. In addition to raising the amount for the child tax credit, the bill “allows taxpayers to elect in 2024 and 2025 to use prior year earned income in calculating their earned income tax credit.”^[2] It would have also excluded from income compensation for wildfire damage or payments due to the train derailment in East Palestine, Ohio.
‍

Tax Bracket Changes: Clients may also want to consider the changes made by the IRS to account for inflation. While the highest impact from the IRS’s tax bracket changes are those making less than $47,000, many clients may benefit from a change to the brackets announced recently by the IRS.^[3] For clients filing individually, the 24% tax bracket now extends an additional $9,850 from $182,100 to $191,950. That means an individual with the same yearly income of $190,000 could shelter nearly $8,000 from the 32% tax bracket it would have been taxed at in 2023. Additional tax changes include the married filing jointly, which has similar shifts.

‍

‍

‍

‍

‍

^[1] https://www.fidelity.com/learning-center/personal-finance/2024-presidential-election-and-your-taxes

^[2] https://www.congress.gov/bill/118th-congress/house-bill/7024

^[3] https://www.kiplinger.com/taxes/tax-law/603037/tax-changes-and-key-amounts

‍

‍

‍

‍

‍

‍

‍These articles are prepared for general purposes and are not intended to provide advice or encourage specific behavior. Before taking any action, Advisors and Plan Sponsors should consult with their compliance, finance and legal teams.

‍