HOW TO PREPARE FOR THE SUNSET OF TCJA PROVISIONS
03/25/2024 10:35AM ● By JENNIFER KRAUSE, DAVIS & HODGDON ADVISORY GROUP
To be clear, there is still time for Congress to
reach an agreement that would extend some
of these provisions. However, given the current
political climate and the upcoming election, it might benefit you to explore ways to take
advantage of the current tax laws.
ESTATE AND GIFT TAXES
Currently, an individual can transfer $12.5
million and a married couple up to $25 million
(during their lifetime or as part of their estate)
without triggering federal gift taxes or estate
taxes. However, unless Congress takes action,
that exemption amount will be cut in half
for the 2026 tax year. If your taxable estate
exceeds the existing exemption amount, you
might consider capitalizing on the current
estate and gift tax laws to reduce your taxable
estate. You could do so with annual cash gifts,
529 accelerated gifts, and irrevocable life
insurance trusts (ILITs), to name a few.
INCOME AND CAPITAL GAINS TAXES
Income tax brackets are also scheduled to revert to pre-TCJA levels so that many individ- uals can expect a significant increase in their effective tax rate. As such, you might consider taking advantage of the current lower tax rates through Roth IRA conversions, income shifting, and capital gains harvesting.
QUALIFIED BUSINESS INCOME
DEDUCTION (QBI)
For many Americans who receive income through pass-through business entities (including many rental properties), one of the TCJA’s most beneficial deductions was the QBI deduction. The QBI deduction allows individuals to deduct up to 20 percent of business income from pass-through entities, including Schedule C businesses, S-Corps, and Partnerships, on their 1040s, but under the current rules, this deduction will sunset after 2025. Keep in mind that there is a great deal of pressure on Congress to extend this provision, but we don’t know for sure what will happen.
PROACTIVE STRATEGIES
To take advantage of current tax laws,
start planning now and factor in taxes for
2025, too. Also, remember that the last six
months of 2025 will be extremely busy for
tax professionals, and since there is no way
to predict if the TCJA provisions will be
extended, now is the time to take advantage
of existing tax laws.
BE ADVISED
You should not act on the information presented here without first seeking profes- sional advice. Check with your tax advisor regarding your specific situation or contact Davis & Hodgdon at 802-878-1963 (Williston) or 802-775-7132 (Rutland).
RESOURCES:
www.kiplinger.com/taxes/what-to-do-before-tax-cuts-and-jobs-act-tcja-provisions-sunset
