2025 Tax Changes: What CFP® Professionals Need to Know About the TCJA Sunset

CFP® Board In The News

As the end of 2025 approaches, key provisions of the Tax Cuts and Jobs Act (TCJA) are set to expire, potentially reshaping the financial landscape for individuals and businesses alike. For Certified Financial Planner™ professionals—whether seasoned advisors or those preparing for certification—understanding these impending changes is crucial for effective client guidance and strategic planning.

Enacted in 2017, the TCJA introduced significant tax reforms, including lowered individual income tax rates, an increased standard deduction, and a doubled estate and gift tax exemption. However, many of these provisions are temporary and will revert to pre-2017 rules unless Congress enacts new legislation.

Key Changes Expected in 2026:

  • Individual Tax Rates: Marginal tax rates are scheduled to increase, returning to higher pre-2017 levels.
  • Standard Deduction and Personal Exemptions: The standard deduction will decrease, and personal exemptions will be reinstated.
  • Estate and Gift Tax Exemption: The exemption amount will be reduced by approximately 50%, from over $13 million per individual in 2024 to around $7 million.¹
  • Qualified Business Income Deduction: The 20% deduction for pass-through business income (Section 199A) may be eliminated.
  • Child Tax Credit: The credit will decrease from $2,000 to $1,000 per child, with adjusted income thresholds.²

Implications for Financial Planning:

  • 1 Income Tax Planning: The potential increase in tax rates underscores the importance of evaluating income acceleration strategies. Actions such as Roth conversions or realizing capital gains before the end of 2025 could be beneficial.
  • 2 Retirement Distribution Strategy: With higher future tax rates, the sequencing of retirement account withdrawals becomes critical. Balancing distributions from tax-deferred and tax-exempt accounts can help manage tax liabilities.
  • 3 Estate Planning: The reduction in the estate and gift tax exemption necessitates proactive estate planning. Utilizing strategies like gifting assets through LLCs can help maximize the use of current exemptions.¹
  • 4 Charitable Giving: Changes in tax rates and deductions may affect the benefits of charitable contributions. Understanding tools like donor-advised funds (DAFs) and qualified charitable distributions (QCDs) will be increasingly important.
  • 5 Business Owner Planning: The potential elimination of the Section 199A deduction will impact small business owners and self-employed individuals. Reviewing business structures and compensation strategies will be essential.

According to a March 2025 survey by the CFP Board, nearly 9 in 10 financial planners believe the TCJA expiration poses a substantial risk to clients’ retirement and legacy plans.³

As financial professionals, staying informed and proactive is key to navigating these upcoming changes. By understanding the implications and preparing accordingly, you can provide valuable guidance to clients during this significant transition.

Sources:

  1. Reuters: Avoiding the Mad Dash to 2026 - https://www.reuters.com/legal/legalindustry/avoiding-mad-dash-2026-use-llcs-vanishing-gift-exemptions-2024-08-27/
  2. Investopedia: Your Taxes Could Rise and Get More Complicated If Lawmakers Don't Act - https://www.investopedia.com/your-taxes-could-rise-and-get-more-complicated-if-lawmakers-dont-act-8689702
  3. AP News: Trump Tax Cuts and the TCJA Sunset - https://apnews.com/article/f4031196e0d69d0a1630e3b06b6d3cd7
Posted in CFP in the News

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