While the media focuses on the presidential election and the candidates’ tax proposals, it is easy to overlook two key issues: Congress must vote on any new tax legislation and the IRS enforces those laws.

Regardless of our political affiliation, we can probably all agree that it seems impossible for our deeply divided government to make a decision on anything, making sweeping tax legislation rare — as we saw with the law on tax cuts and jobs in 2018 –.

So what changes can we expect with the new Congress, and will the presidential candidates’ tax proposals be signed into law?

The fiscal cliff of 2025

The biggest problem facing Congress is that most of the tax provisions passed in 2018 were temporary and are set to expire (or disappear) in what is known as the “2025 fiscal cliff.”

International accounting firm KPMG estimates that more than $4 trillion in tax cuts, mostly benefiting the wealthy, will expire if the TCJA is not extended, making 2025 one of the most critical years for tax policy since the adoption of the initial law.

Congress is unlikely to agree on new or extension legislation, and many, if not all, of the provisions could expire. If this happens, our taxes will look like they did before the 2018 law was passed. However, not everyone will be negatively affected if this happens.

Will my taxes increase or decrease?

One of the biggest changes is that the standard deduction will be cut in half and many unauthorized itemized deductions will return.

Therefore, if before the tax change you itemized your deductions and wrote off your medical expenses, mortgage interest, state and local taxes, charitable deductions, employment, and other miscellaneous deductions, you will likely write off those deductions again instead. to adopt the broadest standard. deduction.

For example, if in 2023 you added up your itemized deductions and they came to $13,000 and you are single, you probably took the current standard deduction of $13,850 instead of bothering to itemize .

If the standard deduction for a single person is reduced in 2026 to $8,300, as the Cato Institute predicts, you’ll likely choose to itemize your $13,000 in deductions instead. Additionally, the $5,275 personal exemptions will also be available again in 2026, so your itemized deduction plus your personal exemption would total $18,275, and you would be in a better situation than under current law.

Some taxpayers will also benefit because many deductions eliminated with the TCJA will be available again. For example, those who previously wrote off their business expenses, including nurses, law enforcement officers, salespeople, and teachers, can again deduct their business expenses. For those of us who live in states like California with higher taxes, our state and local tax deductions will no longer be limited to $10,000.

Many taxpayers, especially those with higher incomes and some business owners, will pay more in income taxes if the law expires. The top marginal tax rate would rise to 39.6% from the current 37% on income above $609,350 in 2024 (affecting only the top 1% of earners). In a simplified example, the marginal tax increase would be just over $10,000 for a single person with a taxable income of $1 million per year.

Additionally, the 20% deduction for qualified pass-through business income (QBI) for many types of businesses would expire. According to the IRS, 50% of those who claimed the deduction in 2021 had incomes less than $100,000, an average deduction of just $1,997. In contrast, the average deduction was just over $1 million for those with income of $10 million or more.

For a complete table of maturing provisions, go to crsreports.congress.gov/product/pdf/R/R47846.

Will the candidates’ proposals become law?

So, aside from the fiscal cliff, how likely are the presidential candidates’ tax proposals to become law?

The “No Taxes on Tips” signs at rallies illustrate how a catchy policy statement made by both candidates on the campaign trail that sounds good on the surface will likely never become law.

In this case, three major tax research organizations have already agreed that eliminating taxes on tips is a bad idea.

According to the Tax Policy Center (taxpolicycenter.org), if only those with adjusted gross income of $75,000 or less were eligible, only about 1.5% of households would benefit.

The Tax Foundation (fiscalfoundation.org points out that most tipped employees already pay little or no personal income tax, because some (mostly part-time) tipped workers earn less than the standard deduction, and others benefit of the professional income tax credit, which reduces their taxes to zero anyway.

The Brookings Institute (Brookings.edu) argues that it may not be the workers who will benefit from such a policy. Employers could simply reduce workers’ base pay, pocketing potential gains for themselves.

They also point out the unfairness of the proposal that exempts income earned as tips for a waitress but not wages earned by a teacher, thereby ensuring that two taxpayers with the same income level would pay significantly different amounts of tax.

Finally, they warn that tax avoidance schemes should always be considered. For example, what’s to stop lawyers from lowering their rates and allowing their clients to pay them a large, tax-free tip for their services?

As you can see, what seems like a great idea at a campaign rally is much less feasible, fair, and implementable once the tax policy experts take the floor.

As Warren Buffet pointed out: “If I get a break, someone else pays.” The government cannot provide a free lunch to the country as a whole. He can, however, determine who pays for lunch. There will be many discussions and compromises before any policy proposal becomes law.

For more information, visit taxfoundation.org/research/federal-tax/2024-tax-plans to view candidates’ tax plans. The Tax Foundation is the world’s leading nonpartisan tax policy nonprofit organization.

Michelle C. Herting is a CPA, Certified Business Valuator, and Certified Estate Planner, specializing in estate planning and estate, gift, and trust taxes.