Trump Era Tax Cuts Are Expiring: 4 Ways Your Household Budget Will Take a Hit
Inflation has hit us hard and we’ve all felt the financial pinch. However, recently enacted tax laws and the expiration of existing rules will likely increase taxes.
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The Fiscal Responsibility Act of 2023 was signed into law in June 2023. It is designed to establish new discretionary spending limits, rescind unobligated funds, increase the federal debt limit, expand work requirements for federal programs, and modify other requirements related to the federal budget process. However, the passage of this bill may only be a temporary solution to the Federal debt limit crisis, which may not be effective and could lead to higher taxes.
At the same time, the 2017 Tax Cuts and Jobs Act (TCJA), signed into law during the Trump administration, is slated to expire at the end of 2025.
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These are the following tax changes that will take place when it does, according to the Tax Policy Center:
Individual income tax rates will revert to their 2017 levels.
The 20% tax deduction for many pass-through businesses will disappear.
There will no longer be a cap on the state and local income Tax (SALT) deduction.
There will be a reduction in the estate tax exemption.
The standard deduction (which many taxpayers take advantage of each year) will be roughly cut in half. The personal exemption will return while the child tax credit (CTC) will be cut.
Overall, taxes will likely increase for U.S. households since tax rates will go up and tax deductions and credits will become more limited.
Ways That Tax Changes May Affect Your Household Budget
Here are four ways that your household budget might take a hit when these tax provisions expire:
You could be paying more in income taxes: As income tax brackets will revert to their 2017 levels upon expiration of the TCJA, you could see more taxes coming out of your paycheck depending on which tax bracket you fall under. This could mean less take-home pay in your wallet.
You might owe more taxes as a business owner: With the 20% tax deduction for many businesses set to be eliminated, you may owe more on your income as a business owner come 2026.
You’ll pay more in estate taxes: If you’re set to inherit an estate after the end of 2025, the existing tax exemption is slated to be cut in half. This means that you’ll owe more taxes on transferred assets than you would if the estate were to be transferred before the end of 2025. It would be wise to transfer assets in advance of 2026 to eliminate any additional tax burden.
You might not be saving as much on taxes via deductions: With the standard deduction set to be cut in half, the Child Tax Credit to be reduced, and the elimination of the cap on the SALT deduction, you’ll be paying more taxes even when taking these deductions and tax credits come 2026.
Ways To Save If You End Up Owing More In Taxes
Here are several ways you can save come 2026 should your taxes go up:
Eat out at restaurants less often: Eating out has become very expensive these days. If you’re going out to dinner with your family four times per month, consider scaling back to just one or two times a month to add more money to your monthly cash flow.
Buy store-label groceries: Brand-name products typically cost more than store-label products at the grocery store. If you’ve always bought brand-name products, switching to all store-label products will save you a bundle.
Cut back on unused streaming services: If you find yourself subscribed to six streaming services that you pay for each month, consider canceling three or four of them. Figure out which ones you use the least (or don’t use at all) and this could save you a nice bundle.
Consider renting space in your home: If you have an empty spare room or an unused basement, consider renting out the space in your home that goes unutilized on a platform like Airbnb. This will help subsidize your monthly housing costs and add more money to your wallet.
Rent your car when you’re not using it: If there are times of the week or the month that you aren’t using your car, you can rent it out using car-sharing platforms such as Turo or Getaround. You could subsidize or potentially eliminate the cost of your monthly auto loan or lease payment, leaving you with extra funds to spend.
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This article originally appeared on GOBankingRates.com: Trump Era Tax Cuts Are Expiring: 4 Ways Your Household Budget Will Take a Hit
