What to Know About the Current US Tax Plan

The United States tax system is largely a product of the Tax Cuts and Jobs Act of 2017 (TCJA). This legislation reshaped federal tax law for individuals and businesses, altering income tax rates, modifying deductions and credits, and changing how corporate profits are taxed.

This guide explains the rules for individual taxpayers, corporations, and the estate and gift tax system. It also covers recent legislation and the scheduled expiration of many TCJA provisions.

Individual Income Tax Rules

The individual tax structure has seven tax brackets with rates from 10% to 37%. These rates apply to taxable income, which is income after allowable deductions are taken. The income thresholds for each bracket are adjusted annually for inflation and vary based on filing status: Single, Married Filing Jointly, Married Filing Separately, or Head of Household.

A feature of the tax system is the increased standard deduction. For 2025, the standard deduction is $14,600 for single filers and $29,200 for married couples filing jointly. This fixed-dollar amount reduces a taxpayer’s adjusted gross income (AGI), and its size means many households no longer find it beneficial to itemize deductions, simplifying the tax filing process.

Taxpayers must choose between taking the standard deduction or itemizing deductible expenses. A taxpayer would only itemize if their total deductions exceed their standard deduction amount. One change for those who itemize is the limitation on the deduction for state and local taxes (SALT). The total amount of state and local property, income, or sales taxes that can be deducted is capped at $10,000 per household annually.

Tax credits reduce tax liability on a dollar-for-dollar basis. The Child Tax Credit was expanded to $2,000 per qualifying child, with up to $1,700 of that amount being refundable for some taxpayers. To claim the full credit, the child must have a Social Security Number. Another credit is the American Opportunity Tax Credit (AOTC), which provides a maximum annual credit of $2,500 per eligible student for the first four years of higher education.

Corporate and Business Taxation

The taxation of corporate profits shifted from a bracketed system to a single, flat rate. C corporations are now subject to a 21% federal income tax on their profits, a rate that is permanent under current law. This change was intended to make the U.S. more competitive by aligning its corporate tax rate with other developed nations.

Businesses not structured as C corporations, such as sole proprietorships, partnerships, and S corporations, are known as pass-through businesses. Their profits are passed through to the owners and taxed on their individual returns. To provide a tax reduction for these entities, the law introduced the Qualified Business Income (QBI) deduction, allowing eligible taxpayers to deduct up to 20% of their qualified business income.

The QBI deduction is subject to limitations based on the taxpayer’s income and the type of business. The deduction may be limited for higher-income taxpayers based on the amount of W-2 wages paid by the business or the unadjusted basis of qualified property it holds. Certain specified service businesses, such as those in health, law, and consulting, face stricter income limitations for claiming the full deduction.

Bonus depreciation allows for 100% first-year expensing for qualified property, which includes machinery, equipment, and software. This provision encourages businesses to invest in new assets. However, the 100% bonus depreciation level is temporary and has been phasing down.

Estate and Gift Tax System

The federal estate and gift tax system is unified, meaning lifetime gifts and transfers at death are tracked against a single exemption amount. The federal estate and gift tax exemption is high; for 2025, it is $13.61 million per individual. An individual can transfer up to this amount during their lifetime or at death without incurring federal estate or gift tax.

For a married couple, the exemption is effectively doubled through portability, which allows a surviving spouse to use any of their deceased spouse’s unused exemption. Because of this high threshold, the federal estate tax applies to a very small percentage of the population. Any amount transferred above the exemption is taxed at a top rate of 40%.

The annual gift tax exclusion allows individuals to give up to a certain amount to any number of people each year without using their lifetime exemption. For 2025, the annual exclusion is $18,000 per recipient. A taxpayer can give gifts up to this amount to many individuals, and these gifts do not need to be reported on a gift tax return or reduce the giver’s lifetime exemption. This makes it a useful tool for transferring wealth incrementally over time.

Impact of Recent Legislation

The Inflation Reduction Act (IRA) introduced further modifications to the tax code, establishing new and enhanced clean energy tax credits for individuals. Taxpayers can claim credits for purchasing new or used electric vehicles (EVs), subject to income, price, and sourcing rules. The law also provides credits for energy-efficient home improvements, such as installing new windows, doors, or heat pumps.

For businesses, the IRA introduced a corporate alternative minimum tax (AMT). This 15% minimum tax is levied on the “book income”—the financial income reported to shareholders—of corporations with average annual adjusted financial income exceeding $1 billion. This provision is designed to ensure that large, profitable corporations pay a minimum level of tax.

Another business provision is a 1% excise tax on the value of stock repurchases by publicly traded corporations. The legislation also increased funding for the Internal Revenue Service (IRS) to improve taxpayer services, modernize technology, and increase enforcement focused on high-income individuals and large corporations.

Scheduled Expiration of Key Tax Provisions

A characteristic of the current tax law is that many of its provisions are not permanent. Most changes from the TCJA affecting individual income and estate taxes are scheduled to expire at the end of 2025. If Congress does not act to extend them, the tax code will revert to the laws in place before 2018.

Among the changes set to occur is the reversion of individual income tax rates to their previous, higher levels, with the top rate returning from 37% to 39.6%. The standard deduction will be cut by roughly half, making itemizing deductions a more attractive option for many households. The $10,000 cap on the SALT deduction is also scheduled to disappear, allowing taxpayers who itemize to again deduct the full amount of their state and local taxes.

The Child Tax Credit would also revert to its pre-TCJA amount of $1,000 per child, and personal exemptions would likely be reinstated. The federal estate and gift tax exemption is scheduled to be cut by approximately half, returning to its pre-2018 level, adjusted for inflation. This change would subject more estates to the 40% federal estate tax.