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Tax Planning Beyond 2025

Education Estate Planning Investing Personal Finance Taxes Retirement

Enacted with the promise of significant tax relief, the TCJA brought about sweeping changes to the U.S. tax code. However, with its provisions set to sunset, individuals must prepare for potential shifts in tax policy. In this blog post, we'll explore the implications of TCJA's expiration, focusing on strategies individuals can adopt now, including considerations for estate planning.

The TCJA, hailed as one of the most significant tax reforms in decades, included various provisions affecting individuals' tax liabilities. These ranged from adjustments to tax rates and deductions to changes in the estate tax exemption. Crucially, the TCJA's provisions are temporary, set to expire at the end of 2025 unless Congress acts to extend them.

The expiration of TCJA could have far-reaching implications for individuals' tax obligations. Key provisions such as lower tax rates, increased standard deductions, and alterations to itemized deductions and credits may revert to pre-2018 levels. Additionally, the estate tax exemption, which was doubled under TCJA, may also revert to a lower threshold, affecting estate planning strategies for high-net-worth individuals.

Strategies individuals can adopt now.

  1. Maximize Retirement Contributions
    • One strategy individuals can employ is maximizing contributions to retirement accounts. Contributions to traditional 401(k)s and IRAs can lower taxable income, potentially reducing tax liabilities. Moreover, contributing to Roth retirement accounts provides tax-free withdrawals in retirement, offering flexibility in managing future tax obligations.
  2. Review Investment Portfolios
    • Given the potential for tax rate increases post-TCJA, individuals should review their investment portfolios and consider tax-efficient strategies. This may include diversifying investments across asset classes, harvesting capital losses to offset gains, and investing in tax-advantaged vehicles such as municipal bonds.
  3. Plan Charitable Giving
    • Charitable contributions remain a valuable tax planning tool, offering deductions that can reduce taxable income. Individuals may consider accelerating charitable donations or establishing donor-advised funds to maximize tax benefits before TCJA's expiration. Strategic charitable giving not only supports philanthropic causes but also provides tax advantages.
  4. Take Advantage of the Federal Gift Tax Exemption
    • A person can give up to $19,000 to as many people as he or she wants without having to pay any taxes on the gifts. For example, a man could give $19,000 to each of his 10 grandchildren this year with no gift tax implications. 
  5. Evaluate Estate Planning Strategies
    • With the estate tax exemption set to revert to pre-TCJA levels, high-net-worth individuals should review their estate planning strategies. This includes assessing the potential impact of estate taxes on their estates and exploring options to minimize tax liabilities. Strategies such as gifting assets during one's lifetime, establishing trusts, and leveraging estate tax exemptions can help individuals preserve wealth for future generations.

As TCJA's expiration approaches, individuals should stay informed about legislative developments and potential tax law changes. Congress may consider extending certain provisions or enacting new tax reforms that could affect individuals' tax planning strategies. Being proactive and adaptable to evolving tax policies is essential for optimizing tax outcomes.

As the sunset of the Tax Cuts and Jobs Act draws near, individuals must take proactive steps to navigate the changing tax landscape. By maximizing retirement contributions, reviewing investment portfolios, planning charitable giving, taking advantage of the Federal Gift Tax Exemption, and evaluating estate planning strategies, individuals can mitigate tax risks and seize opportunities for tax savings. Estate planning, in particular, warrants careful consideration, given the potential impact of TCJA's expiration on estate tax liabilities. By adopting strategic tax planning strategies now, individuals can position themselves for financial success in the post-TCJA era.