After inauguration, it's time to talk taxes

January 15, 2025 • Issue #268

Hi y’all —

I LOVE drama.

I thrive whenever a girl I went to college with changes her Instagram handle back to her maiden name. I'm a regular on the snark subreddits for influencers in both Los Angeles and New York City. I got so into reality TV a couple years ago that I watched not only The Bachelor, The Bachelorette and Bachelor in Paradise but multiple seasons of UnReal, a fictional drama based on the franchise.

So when I learned recently about the impending battle in Congress over the Tax Cuts and Jobs Act of 2017, my ears perked up.

The TCJA was a hallmark of President-elect Donald Trump's first term. Several of its key provisions expire at the end of 2025, though, causing Trump and the Republican Party to vow during their campaigns last fall to make the changes permanent if elected. Now that time has come, but the GOP only has a slight majority in the House and Senate. And Trump's proposals are very expensive.

*rubs hands together gleefully*

What's going to happen with the TCJA this year?

There's no easy answer to that question, but it's already juicy. On Jan. 5, Trump posted on Truth Social that "members of Congress are getting to work on one powerful Bill" that touches on border security, American energy and renewing his tax cuts, rather than tackling each topic separately as previously thought.

Although everything Trump says should be taken with a grain of salt — he also claimed in his post that his 2017 tax cuts "were the largest in History," which is not true — his stance will guide the legislative agenda in the near future. Experts tell me his signature confidence, however, might be overblown.

"I don't think you can take for granted that if the president says he wants a certain thing done, it's going to be done that way when you have such a thin margin," Bob Dietz, national director of tax research at Bernstein Private Wealth Management, says.

That means it's going to be quite a fight in Congress. And even if you're not a politics junkie, it's worth keeping an eye on because of its potential impact on your wallet.

For example, one of the expiring TCJA provisions is the increase to the standard deduction, which is claimed by 90% of taxpayers. According to the Brookings Institution, the standard deduction for a married couple filing jointly will be $16,525 in 2026 if the policy isn't extended. If it is, their standard deduction will be about $30,725.

Individual income tax rates may be affected, too. The TCJA slashed the top marginal tax rate to 37%; if this rule expires, it could rebound to its previous level of 39.6%, according to the Tax Foundation.

It's unlikely the TCJA will be extended in its entirety, says Jim Bertles, head of wealth planning at AlTi Tiedemann Global.

"The Trump administration [and] the Republican Party [have] been saying for some time that they want to quote-unquote 'reduce taxes,' and that translates into, if they can get away with it, extending the TCJA," he says. "Not all the provisions of the TCJA, if they're extended, are favorable to taxpayers."

In math class, I was always like, ‘Why would I ever need this?’ Now I’m sitting here confused about how taxes work.

Bertles says the cheapest, most consumer-friendly policies are probably the lowest-hanging fruit. But those perks aren't even across the board.

An analysis published by the Institute on Taxation and Economic Policy found that Trump's tax proposals would cut taxes for the wealthiest 5% of Americans — and raise them for other income groups. The Tax Foundation, for its part, has estimated that 62% of filers would see their taxes go up if the TCJA expires.

Dietz says the price tag associated with extending the TCJA is controversial — and an issue that's likely to prolong the discussion on Capitol Hill. It's not going to be cheap: Last May, the Congressional Budget Office said extending the expiring individual income tax provisions for another decade would add $3.3 trillion to the national deficit.

The president-elect has repeatedly hyped up his plan to enact tariffs, or taxes on imported goods, on countries like Mexico and China as a way to pay for the tax changes (as well as create U.S. manufacturing jobs and slash the national deficit). But that may have "real consequences to consumers," Dietz says.

Many economists have raised alarm that companies may raise their prices in order to cope with the tariffs, hitting the pocketbooks of everyday Americans. (Some executives, like the CEO of AutoZone, have explicitly said as much.)

For a president obsessed with public opinion and who partially campaigned on lowering prices, that may be a tough pill to swallow. The same could be true for some of the lawmakers Trump needs on board to pass TCJA 2.0 — not all of whom agree with the idea of using tariffs to generate revenue.

"There's just a lot of pieces up in the air," Dietz says.

The bottom line

(but please don't tell me you scrolled past all of my hard work)

Nobody has a crystal ball, but after inauguration, it's gonna get messy as Congress debates extending parts of the TCJA. Luckily, Bertles says, this uncertainty is also an opportunity for us to prepare our finances.

So far, his approach has been to say, "let's plan as if these tax law changes are favorable to you ... and then let's put enough flexibility in the documents so that if they don't change" you're still protected.

via Giphy

Smart MONEY MOVE

what if I said you’re overpaying for car insurance?

A hand holding a small car by a chain Car insurance rates skyrocketed last year (like, by nearly 20%), and who needs that? The good news is that by shopping around and comparing providers, there’s a good chance you could save money while protecting your ride. More than half of drivers who comparison-shop for car insurance end up with a better deal than they had originally. You could start off the new year with a few extra dollars in your pocket by shopping around for a company that meets your needs without wrecking your budget.

Check out Money’s list of top-rated car insurance providers.

Receipt of the week

check out this wild celebrity purchase

via Instagram

On Christmas Eve, rapper Post Malone went to a Houston bar, where fans paid for his drinks. But he asked the bartender specifically to charge him so he could leave a tip — to the tune of $20,000. “His generosity with this life-changing gift blew me away,” the bartender, a single mom with two jobs, told Click2Houston. I guess you could say he gave some help.

Internet gold

five things I'm loving online right now

1

If you, like me, have been struck by the heart-wrenching videos coming out of California, my colleague Adam wrote a great piece on where to donate to help the victims.

2

Feeling stressed? Why not pop some virtual bubble wrap?

3

OK, after I just wrote that, I decided to Google whether popping bubble wrap actually relieves stress, and the answer is yes! Though it's far from scientific, a 2012 survey found that just over one minute of bubble-wrap-popping relieves the same amount of stress as a 33-minute massage. Also, did you know that there's a Bubble Wrap Appreciation Day? This year, it's on Jan. 27.

4

It's about time for the annual tradition of paying to name a cockroach after your ex. (Or, if you're feeling more charitable, buying a kangaroo kiss-o-gram.)

5

It's called fashion, sweety, look it up.

401(k)ITTY CONTRIBUTION

send me cute pictures of your pets, please

via Marie Stone

This is Stevie, a Philly kitty who plans on taking a nap until the nation's pawmakers have decided what to do about tax cuts.

PLEASE SEND ME PET PHOTOS. I am in desperate need of 401(k)9s and 401(k)itties and all sorts of 401(k)reatures. Even if your furry friend has been featured before, can you email me a new picture of them? I'll love you forever.

See you next week.

P.S. Thank you for your feedback last issue! Scholar Shannon told me she's trying to do a No-Buy January. Scholar Amanda said her money goal for 2025 is to keep money in her savings instead of always transferring back to checking. And Scholar Bruce showed me an incredibly cool bird.

P.P.S. Are you planning to pay attention to the tax drama in Congress? When's the last time you popped bubble wrap? What's the largest tip you've ever left? Send comments — and pet submissions!! — to julia@money.com.

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