What Is the Tax Cuts and Jobs Act (TCJA)?

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In 2018, President Trump signed the Tax Cuts and Jobs Act (TCJA), the first major overhaul of the tax code in decades. The law aimed to simplify tax filing, reduce fraud and lower taxes for individuals, while also changing depreciation rules and expense deductions for businesses.

Many TCJA provisions were originally set to expire after 2025. However, later legislation extended several key changes, including lower tax brackets, a higher standard deduction and increased gift and estate tax exemptions.

TCJA Basics: At a Glance

• Standard deduction: Increased to $31,500 for married couples, filing jointly and surviving spouses in 2025
• Maximum marginal tax rate: 37%
• Mortgage interest deductions: Limited to $750,000 in debt for new mortgages
• State and local tax deduction (SALT) cap: $10,000 — set to increase for 2026 tax year
• Cash-based charitable contribution limit: 60% of adjusted gross income (AGI)
• Qualified business income (QBI) deduction for flow-through entities: 20%
• Lifetime gift tax exemption: $14 million per person — increasing to $15 million in 2026

What Is the Tax Cuts and Jobs Act?

The TCJA, introduced in 2017 and put into play for the 2018 tax year, was President Trump’s legislation to overhaul the existing tax code. The overarching goal of the TCJA was to stimulate economic growth and strengthen U.S. businesses.

For individuals, the TCJA lowered the tax rates in several income tax brackets, raised the standard deduction amount, capped SALT deductions at $10,000 and eliminated miscellaneous tax deductions for employees’ workplace expenses.

For businesses, the TCJA permanently lowered the corporate tax rate to 21%. It also introduced a 20% tax break from pass-through income for certain business entities — including LLCs and partnerships — and established a 100% bonus deduction for some business assets.

Major TCJA Changes for Individuals

• Removed health insurance mandate: The Affordable Care Act (ACA) required individuals to purchase health insurance. The TCJA permanently eliminated this requirement and the penalty that came with not having insurance.
• Lowered income tax rates: The average tax rates for all individual income tax brackets fell slightly. The lowest and highest tax brackets remained unchanged, however.
• Increased the standard deduction: The TCJA doubled the standard deduction amount. For married couples filing jointly, the deduction is $31,500 in 2025.
• Suspended the personal exemption: The TCJA repealed the personal exemption, which was $4,150, until the end of 2025.
• Expanded child tax credit (CTC): It increased the child tax credit to $2,000. The law also introduced a nonrefundable tax credit for non-child dependents.
• Student loans reform: Thanks to the TCJA, 529 plans can fund up to $10,000 per year in private school tuition expenses.
• Increased estate tax exemption: The estate tax exemption increased to over $13 million for the 2025 tax year.
• Increased alternative minimum tax exemption: The TCJA increased the alternative minimum tax (AMT) exemption. It also temporarily changed the exemption phaseout threshold.
• Miscellaneous itemized deductions: Eliminated miscellaneous itemized deductions, such as moving expenses and union fees. Certain expenses, like gambling losses, are still deductible.
• Limited mortgage interest deduction: Married couples filing jointly can deduct mortgage interest on up to $750,000 of debt.
• Capped SALT deductions: The SALT deduction cap rises to $40,000 for 2025.

Major TCJA Changes for Businesses

• Lowered corporate tax rate: The TCJA permanently reduced the corporate tax rate from 35% to 21%.
• Repealed the corporate alternative minimum tax (AMT): The AMT was meant to ensure that higher earners pay a minimum amount of taxes.
• Greater deduction for pass-through income: The TCJA lowered taxes on pass-through income for partnerships, sole proprietors and S-corporations. Eligible taxpayers can exclude up to 20% of their pass-through business income when filing federal taxes.
• Immediate expensing allowance: Thanks to the tax reform, businesses no longer must wait for their assets to depreciate over time. Limitations apply.
• Capped interest rate deduction: For businesses, the maximum net interest deduction is 30% of income before interest and taxes.
• Increased cash accounting limitation: The TCJA allows businesses earning no more than $25 million annually to do cash accounting. Before the change, this limit was $5 million.
• Changed foreign earnings law: Under the TCJA, eligible U.S. businesses may pay a preferred lower domestic tax rate on foreign earnings.
• Other changes: The TCJA eliminated the Section 199 deduction for domestic production activities and the net operating loss (NOL) carrybacks.

Good To Know

Tax rules can be complex, especially for small businesses. A tax accountant who specializes in small businesses can help you understand these changes and apply them correctly.

Temporary vs. Permanent TCJA Provisions

The original TCJA had some provisions that were set to expire in 2025. The One Big Beautiful Bill Act (OBBBA) extended some provisions and made others permanent.

• The corporate tax rate cut from 35% to 21% remains in effect, as does the repeal of personal tax exemptions.
• Individual income tax rate cuts based on brackets were scheduled to sunset in 2025, but have now been made permanent.
• The standard deduction increase has been extended, reducing the number of people who are likely to itemize.
• The AMT exemption was also made permanent under OBBBA.
• Beginning in 2026, the estate and gift tax exemptions will increase to $15 million per individual or $30 million per married couple.
• For businesses, the 100% bonus depreciation expires by the end of 2026.

Planning Considerations for Families

• Families with children under 17 and income under $400,000 — married, filing jointly — may expect a larger refund thanks to the higher maximum CTC.
• The CTC is partially refundable, which means you can claim $1,700 of it as a refund even if you owe zero taxes.
• Families will also want to consider the child and dependent care credit, which is worth up to $2,100. This credit helps defray the costs of care for household members who are disabled or ill and cannot care for themselves.

Considerations for Small Business Owners

• The OBBBA made the 20% QBI deduction permanent for many pass-through businesses.
• Small businesses can fully deduct qualified equipment, machinery and technology purchases, including items bought late in 2025 for the 2026 filing season.
• You can depreciate part of an asset upfront and spread the rest over time, which may help if you expect higher income in future years.
• Updates to qualified small business stock gains and business interest expense rules can create additional planning opportunities.

Misconceptions About TCJA

• Myth: The TCJA only helped wealthy individuals and corporations.
• Fact: The TCJA lowered the corporate tax rate from 35% to 21%, and higher earners received larger average dollar savings. But most middle-income taxpayers also saw cuts — in 2019, more than 80% of households earning $50,000 to $100,000 received a tax reduction.
• Myth: The SALT tax deduction cap only hurts wealthy individuals.
• Fact: Many middle-class homeowners in high-tax states pay more than $10,000 a year in property taxes. The SALT cap limited deductions for these households as well, prompting lawmakers to temporarily raise the cap.
• Myth: The TCJA simplified taxes for everyone.
• Fact: The law simplified filing for taxpayers with straightforward returns. However, it made taxes more complex for small business owners and itemizers, who often have to compare standard and itemized deductions to minimize taxes.

Key Takeaways

• The OBBBA has extended many provisions of the TCJA, including lower marginal tax rates and a reduced corporate tax rate.
• The standard deduction for 2025 is $15,750 for individuals and $31,500 for couples filing jointly.
• While the TCJA simplified tax filing and reduced taxes owed for many taxpayers, it didn’t affect everyone equally.
• Speak to a tax professional to find ways to minimize your tax burden in 2026 under the new tax provisions.

Angela Mae Watson contributed to the reporting for this article.

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