Take Advantage of These Soon-to-Expire Tax Cut Options Now, Before They’re Gone
Did you know that at the end of 2025, the Tax Cuts and Jobs Act (TCJA) of 2017 will expire? That means you only have about two and a half years to take advantage of some tax options that can help save you money. There’s no guarantee many of these provisions will be extended, so you should act now.
The TCJA reduced individual tax rates by sharply increasing the standard deduction (from $13,000 to $24,000) and more than doubling the lifetime gift and estate tax exemption. Additionally, businesses received high permanent tax cuts, though that doesn’t really impact your individual taxes.
It’s unclear if the provisions under TCJA will be extended by Congress. Right now, with partisanship a major hurdle to legislation, that uncertainty may remain for months. So it’s a good time to look into all the tax cut opportunities available before they disappear.
Estate and Gift Tax
Staying within federal gift and estate tax limits to avoid federal tax requirements has never been easier. They currently sit at historic highs, allowing those filing as an individual to transfer up to $12.93 million and those filing jointly to transfer up to $25.84 million across a lifetime or in your estate without forcing any federal gift or estate taxes.
These highs will drop by half should no legislative action be taken, however. So you should take advantage of any opportunity for gifting now rather than wait. Consider these options to reduce the amount of taxable money in your estate:
· Gifting up to $17,000 (if you file individually) or $34,000 (if you file jointly) in cash to anyone.
· Accelerating five years into 529 plans, which means gifting up to $85,000 in a year (for individuals) or $170,000 for couples.
· Creating an irrevocable life insurance trust, which pays out a death benefit that remains tax-free.
· Setting up a dynasty trust, or a long-term trust that lets you skip estate and gift taxes. Your heirs can transfer the income and appreciation to the next generation while avoiding those tax concerns.
Enjoy Lower-Tier Tax Benefits While You Can
Another part of the act that will expire is capping the top tax bracket at 37%. It will rise to 39.6%, meaning those with more wealth will pay more. Until then, you should look for ways to increase your income while you can still pay less in taxes. Two smart moves might be:
· Harvesting capital gains by selling off highly appreciated securities.
· Converting a traditional IRA to a Roth IRA, which has no required minimum distributions, unlike a traditional. By doing this before 2026, you can pay the tax liability upfront and it may be a lower rate than if you wait.
Tax laws and changes can be confusing. If you want to know more about ways to take advantage of TCJA provisions due to expire in just a few years, contact Jay. He can advise you on ways to save money on taxes while looking to the future.