The passage of the 2017 Tax Cuts and Jobs Act (TCJA) changed personal and corporate tax regulations and practices in a profound way, slashing taxes on corporations and a large portion of Americans and lessening the estate tax burdens of receiving generations. However, action must be taken to renew some of the law’s provisions — set to expire at the end of 2025.
Conventional wisdom holds that a Republican administration and legislature would extend the tax cuts. Conversely, in the case of a Democratic administration and legislature, the fate isn’t quite as certain; they may renew some more popular aspects of the law while allowing others to expire.
Since we don’t know the outcome of the 2024 election at this point, we can say the most likely outcome is a mixed bag involving negotiating. At Peak Financial Group, we are always looking ahead to see what can be done now to improve the financial outcomes for our clients’ tomorrows. Here are a few key provisions we’re keeping an eye on and how they could impact you in the future.
Increased Estate and Gift Tax Exemption
• TCJA Provision: The TCJA significantly increased the federal estate and gift tax exemption to $11.7 million per individual ($23.4 million per married couple) in 2021, adjusted annually for inflation.
• Impact if Expired: The exemption would revert to pre-TCJA levels, also indexed for inflation, drastically increasing the number of estates subject to federal estate taxes.
Reduced Individual Income Tax Rates
• TCJA Provision: The TCJA lowered the top individual income tax rate to 37%, with reductions across other tax brackets as well.
• Impact if Expired: Individual tax rates would increase, with the top rate returning to 39.6%, leading to higher income taxes for wealthy individuals and families.
20% Deduction for Pass-Through Income (Section 199A)
• TCJA Provision: Individuals with income from pass-through entities (like S-Corporations, partnerships, and LLCs) can deduct up to 20% of their qualified business income, subject to certain limitations.
• Impact if Expired: The deduction would be eliminated, increasing taxable income for business owners and investors in pass-through entities.
$10,000 Cap on State and Local Tax (SALT) Deduction
• TCJA Provision: The TCJA capped the SALT deduction at $10,000, limiting the amount of state and local taxes that can be deducted from federal taxable income.
• Impact if Expired: The cap on SALT deductions would be lifted, allowing individuals and families in high-tax states to deduct a larger portion of their state and local taxes, potentially lowering their federal tax liability.
Doubling of the Standard Deduction
• TCJA Provision: The TCJA nearly doubled the standard deduction, reducing the need for itemizing deductions for many. For 2024, the standard deduction is $13,850 for single filers and $27,700 for married couples filing jointly.
• Impact if Expired: The standard deduction would revert to lower pre-TCJA levels, making itemizing more attractive and potentially increasing taxable income for those who do not itemize.
What does this mean for your financial plan?
These expiring provisions could significantly impact financial and estate planning strategies for high-net-worth individuals, making it essential to consider potential changes as the expiration date approaches. As the TCJA sunset inches closer, if taxes are projected to go up for you, we can recommend tax reduction strategies to help you keep as much of your hard-earned money as possible.
As we stay abreast of these changes (that may or may not become a reality), we are looking out for your interests and considering steps you can take to help grow and preserve your assets. Please reach out if you’d like to discuss any of these potential changes!
Resources:
- https://www.kitces.com/blog/tax-cut-and-jobs-act-tcja-sunset-marginal-tax-rates-personal-exemption-phaseout-pease-limitation-qbi-deduction/#:~:text=TCJA’s%20sunsetting%20at%20the%20end,allowed%20to%20lapse%20as%20scheduled
- https://www.nytimes.com/2024/08/22/us/politics/kamala-harris-tax-plan.html
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