From inflation-adjusted tax brackets to looming U.S. tariffs, the current U.S. economic landscape is filled with uncertainty – and tax policy is no different. While new bills circulate, Congress remains divided on Trump’s push to extend provisions of the 2017 Tax Cuts and Jobs Act (TCJA).
Unless lawmakers act, many tax benefits will expire at the end of this year. In this blog, we break down what’s set to change – and what individuals and businesses should consider as they prepare for potential tax shifts in 2026.
These are the key cuts to consider.
1. Individual Tax Rates Revert to Pre-2017 Levels
The TCJA temporarily lowered individual tax rates through 2025. If it expires, most taxpayers could see increases, especially higher earners. The top rate will jump from 37% back to 39.6%, and other brackets will shift upward. For instance, the current 12% bracket would increase to 15%, and the 22% bracket would rise to 25%.
2. The Standard Deduction Shrinks
The nearly doubled standard deduction will be cut roughly in half, leading to higher taxable income and larger tax bills for many.
Here’s how the numbers would change:
- Married couples filing jointly: Drops from about $30,000 to $16,700
- Single filers: Falls from around $15,000 to $8,350
- Heads of household: Decreases from roughly $22,500 to $12,250
This may force more taxpayers to itemize their deductions – a process that requires detailed documentation, which may take more time to complete. And for many, itemized deductions may not exceed the lower standard deduction, meaning they could still end up with a higher tax bill overall.
3. Child Tax Credit Decreases
The IRS will reduce this credit by half, dropping it from $2,000 to $1,000 per child. Similarly, the income limits to qualify for the credit will also drop sharply. Currently, the credit begins to phase out at $200,000 for single filers and $400,000 for married couples filing jointly. These thresholds would fall to $75,000 and $110,000, respectively, which means that middle-income families won’t be able to access the credit in the way they can now.
4. Qualified Business Income (QBI) Deduction Ends
Qualifying business income will once again be fully subject to ordinary income tax rates once the 20% deduction for pass-through entities – including LLCs, partnerships, and sole proprietorships – expires at the end of this year.
For example, a business owner with $100,000 in QBI currently deducts $20,000, reducing their taxable income to $80,000. Once the deduction ends, the IRS will tax the full $100,000, which could push the taxpayer into a higher bracket. This could impact how businesses handle compensation, profit distributions, and entity structuring, making proactive tax planning essential heading into 2026.
5. Estate and Gift Tax Exemption Drops
The IRS will lower the estate and gift tax exemption to about $5.5 million per individual. This means that families with significant assets will need to revisit estate planning strategies to avoid a potential tax hit on wealth transfers starting in 2026.
6. Itemized Deduction Limits Return
The TCJA’s caps on several itemized deductions are scheduled to roll back, including:
- State and Local Tax (SALT) Deduction: The $10,000 cap on deducting state and local taxes will likely be lifted, allowing for larger deductions, especially relevant in high-tax states.
- Mortgage Interest Deduction: The deduction limit on mortgage interest is expected to return to loans up to $1 million, up from the current $750,000 cap.
What Happens Next?
Lawmakers are deciding how much of the TCJA to keep, change, or scrap altogether.
Proposals on the table include everything from a full extension of the current tax cuts to the creation of new tax breaks. But with over $4.5 trillion in potential tax cuts and rising concerns about the national deficit, the path forward remains uncertain.
For individuals and business owners, the key takeaway is this: don’t wait for the dust to settle. Planning ahead is the best way to stay protected.
Need a Tax Strategy for 2025?
It’s time to get proactive. You need a strategy that covers you for every eventuality. At Fusion CPA, we help individuals, families, and business owners build tax strategies that reduce risk and maximize opportunity.
From optimizing your business structure to updating your estate plan, we can help you through it all. Contact us today!
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