Lifepoint Financial Design – LifePoint Financial Services – Mike Metzger Financial Planning

Important Tax Law Changes and Why You Need to Strategize now!

 

Mike Metzger, Founder | CERTIFIED FINANCIAL PLANNER™

The Tax Cuts and Jobs Act (TCJA) of 2017 brought significant changes to the U.S. tax system, aiming to stimulate economic growth and provide relief to taxpayers. However, many of these provisions are set to expire in 2025, raising important considerations for individuals and businesses alike. In this blog, we will delve into the implications of the TCJA sunsetting in 2025, who it affects, and the major changes that could occur if the Act is not extended.Impact on Taxpayers:The sunset of the TCJA in 2025 will have a profound impact on taxpayers across various income levels. One of the key changes that could occur is the reversion to higher income tax rates at lower thresholds. This means that individuals and families may see an increase in their tax liabilities if the current tax brackets are adjusted post-2025.Additionally, the State and Local Tax (SALT) deduction cap, which is currently set at $10,000, could revert to being unlimited. This change would particularly benefit taxpayers in high-tax states who rely on this deduction to reduce their federal tax burden.Another significant change that may take place is the reduction of the mortgage interest deduction limit from $1 million of debt to a lower threshold. Homeowners with larger mortgages could see a decrease in the amount of interest they can deduct from their taxable income.Furthermore, the Alternative Minimum Tax (AMT) exemption could be lowered post-2025, leading to more taxpayers being subject to this parallel tax system. Estate planning could also be affected, as the estate tax exclusion may revert to $7 million per person, potentially impacting wealthy individuals and families.Strategies to Consider:Given the impending sunset of the TCJA in 2025, it is crucial for individuals and businesses to start planning ahead and considering various strategies to navigate the potential changes in the tax landscape. Some strategies to consider include:1. Reconsidering installment agreements that extend beyond 2025 to assess the impact of changing tax rates.2. Shifting income to family members through gifting to take advantage of lower tax rates.3. Considering Roth conversions before the TCJA sunset to potentially lock in lower tax rates.4. Exploring the use of more complex trusts for estate planning purposes.5. Exploring gifting options such as Custodial UTMA accounts, Roth IRA contributions, and direct payment of medical and educational expenses for family members.As the Tax Cuts and Jobs Act is set to sunset in 2025, individuals and businesses need to be proactive in preparing for the potential changes that may occur. By understanding who will be affected, the major changes that could take place, and implementing strategic planning, taxpayers can navigate the evolving tax landscape with greater ease. It is essential to start considering these strategies now to ensure financial preparedness and minimize tax liabilities in the post-TCJA era.

 

 

 

Disclosures:

Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual.

The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful.

This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.

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