Since 2017, the Tax Cuts and Jobs Act (TCJA) provided significant tax code changes – most of which are set to revert at the end of 2025. And while sunsets mean that changes are coming, it also means that there could be an opportunity to pay less in taxes before it happens. So, before these changes change back to pre-2017 levels, you should know how these changes may impact your tax bill and what you can do today to minimize the impact.
Notable Changes
Not everyone is going to be impacted by every change coming with the TCJA expiration, yet given the broad scope of the act, everyone should be aware of the changes and how important it is to plan accordingly.
The changing of income tax brackets is most applicable to everyone. Although ‘tax cuts’ is in the name and it is set to expire, your marginal income tax rate can be higher or lower with the sunset, not an automatic increase. Since it’s nuanced, it’s worthwhile to know how your situation may be impacted, after all some will see a 20% increase in their tax bill. Then you can determine the appropriate strategies to implement before 2026.
In addition to tax brackets, the doubling of the standard deduction limit (which made itemizing less impactful) will be adjusted to about half of what it is today. Furthermore, the state and local tax (SALT), mortgage interest, and miscellaneous itemized deductions were temporarily modified or suspended under the TCJA and will expire or have limit changes when the act expires. This provides an opportunity to revisit your current approach to deductions and credits.
The estate and gift tax exemption is another significant piece of the TCJA sunset as the exemption will be cut in half to somewhere around $7 million per person, compared to the roughly $14 million per person the limit is today.
And that’s only a few highlights of the TCJA, read more changes in Planning for the Tax Cuts and Jobs Act Sunset in 2025.
We can help you prepare for the Tax Cuts & Jobs Act sunset
Planning takes time and coordination. Don't leave money on the table as deadlines come and go, and schedules book up. Schedule a call with us today to review your existing plan, ensure you’re maximizing tax savings, and, most importantly, make sure you’re prepared for the deadline in 2025. No matter where your plan stands today, you’ll walk away with a roadmap of to-dos ahead of the sunset.
Schedule a call today3 To-Dos Before the TCJA Sunset
Given the number of provisions in the act, planning is critical to understand exactly how you will be impacted and what strategies you can implement while it’s advantageous to do so. Working with your team of professionals – financial advisor, estate attorney, and tax professional – will be essential in effectively and efficiently capturing the upsides of the TCJA before the sunset.
To prepare for the Tax Cuts and Jobs Act sunset, high-net worth individuals should consider the following.
- Review and Adjust Estate Plan
- Reevaluate Tax Strategies
- Update Financial Plan
With the anticipated reduction in estate and gift tax exemptions, it’s crucial to reassess your estate planning strategies and act now. Consider these strategies:
- For sizable estates, consider making substantial gifts to loved ones or charitable causes before the change.
- For smaller estates, techniques such as annual gifting or Spousal Lifetime Access Trusts (SLATs) that remove assets from your estate may be appropriate
With the potential return of higher tax rates and changes to deductions, it’s time to revisit your overall tax management strategy. Consider these strategies:
- Rules and regulations provide guardrails as to what is recognized as taxable income, while that’s out of your control, you can strategically plan when to accelerate (or defer) income. What you can control is the timing of the income, and for some it will make sense to make income decisions based on how your taxes may change in 2026.
- The changes to deductions will allow more people to itemize post-sunset, making it worthwhile to review your expenses and plan your new tax management approach. In the meantime, the increased standard deduction offers opportunities such as ‘bunching’ charitable contributions or other deductions.
An updated and complete financial plan will make all these changes that much easier to navigate. You’ll have clear insight into your entire financial picture and can easily assess the impact of these potential changes on your broader financial plan. This can include revising retirement plans, investment portfolios, and charitable giving strategies. Overall, your advisor can help ensure your plan aligns with the anticipated tax implications and your long-term financial goals.
While the act doesn’t sunset until the end of 2025, it’s closer than you think. Between scheduling meetings, planning and coordinating strategies, and completing paperwork the next year will go by fast. After all, the act was passed only 10 days before the provisions went into effect – leaving little time for planning. Don’t wait and miss out on these opportunities, start having conversations and planning today.
Download your TCJA planning checklist
Please consult with an attorney or a tax or financial advisor regarding your specific legal, tax, estate planning, or financial situation. The information in this article is not intended as legal or tax advice.
