The 2017 Tax Cuts and Jobs Act (TCJA) is set to expire at the end of 2025, bringing into play questions surrounding income tax planning, charitable giving and, perhaps most significantly, estate tax planning. While Congress could still act prior to the expiration of the TCJA, now is the time to take advantage of some of the Act’s more friendly income and estate tax provisions before they expire.
First, note that upon expiration of the TCJA, tax brackets will revert to their 2017 levels, which means that many taxpayers will be subject to higher income tax rates beginning in 2026. Additionally, a number of other key tax provisions will expire and affect high earners or business owners in particular. These include:
- Reduction in the standard deduction (expected to be cut roughly in half from the current $13,850 per individual)
- Elimination of the deduction for Qualified Business Income (QBI)
- Increase in allowable mortgage interest deduction
- Elimination of the cap on deduction for state and local taxes (SALT deduction, currently limited to $10,000)
- Reduction in the annual deduction limit for charitable contributions (from the current 60 percent of AGI back to 50 percent)
- Reduction in the lifetime estate and gift tax exemption (expected to be cut roughly in half from the current $13M per individual)
That last bullet point is of particular significance for high net worth families who may need planning to mitigate the estate tax burden on the next generation. Some provisions of the Code will remain in place, however. For example, the TCJA cut the top corporate income tax rate from 35% to 21%. This rate will remain in place after expiration of the Act. Similarly, there will be no change to the tax treatment of short and long-term capital gains.
With these expected changes on the horizon, it is important to consider planning strategies that can be used to take advantage of more favorable provisions before they expire. Be sure to consider any projected appreciation of a taxable estate when deciding whether certain estate planning tools are necessary, as the ability to use the higher exemption amount may be lost for good once the Act sunsets.
Ancora’s Planning team has been busy meeting with clients to formulate strategies in conjunction with their estate and tax professionals. For example, recent discussions have involved the utilization of Roth conversions to accelerate deferred taxes into more favorable years, “lumping” charitable donations to a Donor Advised Fund for more efficient philanthropic giving or utilizing various types of trusts to minimize or avoid estate taxes with the transfer of assets.
Every client’s situation is different, which is why our team takes a consultative and comprehensive approach to planning, working with your investment, tax and estate professionals. We encourage you to reach out to your Ancora team if you are interested in learning more on any of these topics or scheduling a review to assess your strategic opportunities prior to the expiration of the TCJA.