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

Regardless of our party affiliation, we can probably all agree that it seems impossible for our deeply divided government to decide on anything, and that makes sweeping tax legislation — as we saw with the Tax Cuts and Jobs Act of 2018 — rare .

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

Fiscal cliff from 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 called the “2025 tax loophole.”

International accounting firm KPMG estimates that more than $4 trillion in tax cuts, which mainly benefit the wealthy, will expire if the TCJA is not extended, making 2025 one of the most critical years for tax policy since its passage the initial act.

Congress likely won’t be able to agree on new legislation or an extension, and many or all of the provisions could be allowed to expire. If this happens, our taxes will be similar to what they were before the 2018 legislation was passed. However, not everyone will be adversely affected if this happens.

Will my taxes go up or down?

One of the most significant changes is that the standard deduction will be cut in half and many disallowed itemized deductions will return.

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

For example, if in 2023, you itemized deductions and they were $13,000 and you’re 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 would likely choose to itemize your $13,000 deductions instead. In addition, personal exemptions of $5,275 will also be available again in 2026, so your itemized deduction plus your personal exemption would total $18,275 and you would be better off 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 workplace expenses, including nurses, law enforcement officers, salespeople and teachers, can deduct their workplace expenses again. For those of us in higher-tax states like California, our state and local tax deductions will no longer be capped at $10,000.

Many taxpayers, especially higher earners and some business owners, will pay more in income tax if the law expires. The top marginal tax rate would return to 39.6% from the current 37% for incomes 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 a year.

Also, the 20% deduction for qualified business income (QBI) for many types of businesses would expire. According to the IRS, 50 percent of those who claimed the deduction in 2021 had incomes below $100,000, averaging just a $1,997 deduction. By contrast, the average deduction was just over $1 million for those with incomes of $10 million or more.

For a complete table of expiring provisions, visit crsreports.congress.gov/product/pdf/R/R47846.

Will the candidates’ proposals become law?

So, aside from the tax cliff, what is the likelihood that the presidential candidates’ tax proposals will become law?

“No Tipping Taxes” signs at rallies illustrate how a catchy policy statement made by both candidates on the campaign trail that sounds good on the surface probably won’t become law.

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

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

Fiscal Foundation (taxfoundation.org points out that most tipped workers already pay little or no personal income tax because some (mostly part-time) workers earn less than the standard deduction and others get the Earned Income Tax Credit, which they anyway reduce taxes to zero. .

Brookings Institution (Brookings.edu) argues that it cannot be workers who gain from such a policy. Employers could simply cut workers’ base pay, pocketing future earnings for themselves.

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

Finally, they warn that tax avoidance schemes must always be considered. For example, what will prevent lawyers from lowering their fees and allowing their clients to pay them a large tip without fees for their services?

As you can see, what sounds like a great idea at a campaign rally is much less feasible, fair, and enforceable once tax policy experts get involved.

As Warren Buffet pointed out, “If I get a break, someone else pays. The government cannot provide a free lunch to the entire country. However, it can determine who pays for lunch.” There will be much discussion and compromise before any policy proposal becomes law.

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

Michelle C. Herting is a CPA, certified in business valuations and a certified estate planner specializing in estate planning and estate, gift and trust taxes.