By Mike Gibbons, RICP®
The 2018 Tax Cuts and Jobs Act (TCJA) introduced many tax changes that affected both corporations and individuals. And while the corporate changes became permanent law, many provisions to individuals were designed to expire after the 2025 tax year.
These provisions, known as sunsetting tax provisions, add complexity to an already complicated tax planning environment. As this event approaches, our firm is dedicated to providing both current and prospective clients in the healthcare and pharmaceutical industry with the latest information to help you make informed financial decisions. Below, we outline what to anticipate from the 2025 Tax Sunset, including the expiring provisions and their potential implications.
Individual Taxes
Let’s start with an explanation of how the 2025 Tax Sunset could affect individual taxpayers.
Lower income tax brackets: The lower tax brackets that were put in place by the Tax Cuts and Jobs Act (TCJA) will revert to pre-2017 levels. That means that millions of taxpayers could potentially be pushed into higher tax brackets.
Decreased standard deductions and personal exemption: By decreasing both standard deduction amounts and personal exemptions, the 2025 Tax Sunset could cause higher taxable income for individual filers.
Child tax credit: Currently, the child tax credit allows families with children to reduce their taxable income; this allowance would expire.
State and local tax (SALT) deduction cap: If the current $10,000 cap on deductions for state and local taxes expires, residents in high-tax states like California, New York, and New Jersey could benefit. The downside is that eliminating the deduction cap could potentially shift the tax burden to the federal government.
Business Taxes
Here’s a snapshot of how the 2025 Tax Sunset could impact business taxes:
Full expensing of deductions: This temporary condition that allows instant expensing of business expenses would expire. For affected businesses, the result would be increased taxable income.
Pass-through business income deductions: This tax provision allows the deduction for income from pass-through businesses like partnerships and S corporations. When this law expires, the tax liability for many small businesses could increase.
Bonus depreciation: Businesses that invest in equipment and machinery will be impacted when this deduction for specific depreciable property disappears.
Uncertainty
Ultimately, the consequences of the 2025 Tax Sunset are unsettled. There’s a possibility that Congress will extend or alter these tax laws before the end of 2025, but if that doesn’t happen, the above changes can take place.
If the 2025 Tax Sunset occurs without intervention from the government, the effects on individuals and businesses will vary contingent upon their unique situations. Some taxpayers would experience an increased tax liability, while others could potentially gain from changes like the SALT deduction cap removal. Or, conversely, some businesses could face a higher tax bill if temporary deductions expire.
Prepare Yourself With Professional Support
The most effective approach to navigating the potential ramifications of the 2025 Tax Sunset is by seeking guidance from a professional financial advisor. At Gibbons Financial Group, our team conducts a thorough analysis of your income tax records, expenses, and the implications of investment decisions on both your current income tax and future tax liability. Should you opt for it, we can work closely with your tax advisor so your financial plan is properly equipped to address the anticipated changes.
Whether you’re a pharmaceutical rep or healthcare professional, if you’re ready to collaborate with us in aligning your finances with the 2025 Tax Sunset, feel free to contact us at 224-419-5550 or email me at Mike@gibbonsfinancialgroup.com to schedule a complimentary consultation. And be sure to join our free webinar, Retiring Early From Pharma.
About Mike
Michael J. Gibbons is founder and president of Gibbons Financial Group, an independent advisory firm providing custom-tailored financial planning and investment management services to pharmaceutical and healthcare professionals and their families. Mike has over 25 years of experience and spends a significant portion of his day working with pre-retirees and retirees, focusing on asset management, Social Security and pension planning, as well as retirement income preparation.
Mike has degrees in both business and psychology from Lake Forest College and currently holds his Retirement Income Certified Professional (RICP®) designation from the American College. Mike was named a Five Star Wealth Manager for 2016 and 2018* Mike is heavily involved in his community, having served on the Village of Gurnee Police Pension Board as a Community Volunteer and the St. Patrick’s Parish Financial Board. When he’s not working or volunteering, Mike loves playing golf and spending his time with his wife and children. To learn more about Mike and how he can help you, connect with him on LinkedIn, visit his website, and register for his free webinar, Retiring Early From Pharma, created specifically for professionals retiring from the pharmaceutical, biotechnology, and healthcare industries.
*Award based on 10 objective criteria associated with providing quality services to clients such as credentials, experience, and assets under management among other factors. Wealth managers do not pay a fee to be considered or placed on the final list of 2016/2018 Five Star Wealth Managers.
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual.