The Tax Cuts and Jobs Act (TCJA): What’s at Stake?

Christopher Long CFA ® , CFP ® , AAMS ® |
Categories
Tax-cuts
Retirement Planning
estate planning

The Tax Cuts and Jobs Act (TCJA) of 2017 significantly reshaped the tax landscape, likely impacting your family’s finances through lower tax brackets, adjusted deductions, and other key provisions. However, many of these benefits are temporary.

 

Most TCJA provisions are set to expire at the end of 2025. Here’s how this looming deadline could impact your wallet:

  • Taxes: Your tax bracket may increase, leading to a larger tax bill.
  • Deductions: Deductions you currently rely on may be reduced or eliminated, further increasing your taxable income.
  • Retirement Plans: Contribution strategies and required minimum distributions (RMDs) may need to be reevaluated in light of the sunset.
  • Estate Planning: The estate/gift tax exemption is expected to be cut in half, potentially affecting your legacy planning.

 

The 2024 election could impact the future of this Act. Until then, we’ve compiled a comparison chart, a helpful checklist, and a list of steps you can take now (below).

 

Ways to Take a Proactive Approach 

 

1.  Analyze Your Current Tax Situation

  • Project your future tax liability: Work with your wealth advisor to estimate how your tax rates might change after 2025. Use this information to adjust your budget and financial goals accordingly.
  • Review itemized deductions: Identify which deductions you currently utilize and assess how their potential changes might impact your tax liability. Explore alternative strategies to maximize deductions before and after the sunset.

 

2. Optimize Your Retirement Planning

  • Optimize withdrawal strategies: Consider if it makes sense to accelerate your retirement account withdrawals, or implement a more aggressive Roth conversion strategy, while in a lower tax bracket and in an effort to reduce the future RMDs you will be subject to after the sunset occurs.  
  • Minimize future RMD impact: Consider if it makes sense to take voluntary distributions now (if in a lower tax bracket) to mitigate taking excessive withdrawals (after the sunset occurs) toward the end of your 10-year window.

 

3.  Review Investment Strategies

  • Explore tax-efficient investments: Consider diversifying your portfolio with investments that offer tax advantages, such as municipal bonds or dividend-paying stocks.
  • Rebalance with tax implications in mind: When rebalancing your portfolio, be mindful of the potential tax consequences of selling assets and consider strategies to minimize capital gains taxes.

 

4.  Accelerate Estate Planning Strategies

  • Maximize gifting opportunities: If you’re concerned about estate taxes, consider utilizing your higher gift tax exemption now to transfer assets to loved ones. Determine whether certain charitable giving strategies (e.g., “bunching” up donations in key years) will still make sense, and consider alternative strategies (e.g., consistent annual gifting) you could employ at that time.
  • Explore trusts and other estate planning tools: Work with an estate planning attorney to establish trusts or other strategies to protect your assets and minimize potential estate taxes.

 

5.  Stay Informed and Seek Professional Guidance

  • Monitor legislative developments: Keep up-to-date on any potential extensions or changes to the TCJA.
  • Consult your wealth advisor: Discuss your individual circumstances and develop a personalized plan to navigate the TCJA sunset effectively.

 

Need help navigating these changes? Contact us with any questions.