Year-end is always busy, but with a presidential election, 468 Congressional seats up for grabs, and several tax provisions from the Tax Cuts and Jobs Act (TCJA) expiring after 2025, there are many moving parts that could affect the stock market, economy, and your taxes. Both parties have proposed aggressive tax changes, but with numerous possible political outcomes, it’s impossible to predict what the future holds.
We generally avoid providing advice on proposed changes. Remember, for tax legislation to become law, it must pass both the Senate and House of Representatives and receive the president’s approval. Changes often move slowly, as negotiations can be lengthy. While there are times you may want to wait and see if specific laws change, until any new legislation becomes law, taxpayers should consider taking advantage of the current tax rules.
One significant change on the horizon is the sunsetting of current estate and gift tax exemptions. Right now, the federal estate tax threshold is $13.6 million for individuals and $27.22 million for couples. If the current law sunsets after 2025, those limits will drop to about $7 million for individuals and $14 million for couples, adjusted for inflation. While most families won’t be affected, those nearing the $14 million threshold may want to reassess their estate plans.
The IRS has confirmed that individuals who utilize the higher exclusion amounts available from 2018 to 2025 won’t lose those benefits after 2025. Some families may want to accelerate asset gifting or voluntarily file estate tax returns if one spouse has already passed. This can “port” the joint exemption to the surviving spouse, and once ported, the exemption won’t revert to pre-TCJA levels.
Setting up a trust is another option for families looking to take advantage of today’s exemptions and move assets out of their estate. However, trusts are subject to income tax and generally don’t benefit from the step-up in basis that most inherited assets receive. If you hold highly appreciated assets, you’ll want to consult your tax adviser and estate planning attorney to determine if forgoing the step-up in basis is worth avoiding estate taxes.
Some taxpayers may want to accelerate income if they anticipate higher future tax rates. For instance, those planning to sell a business may want to consider completing the transaction sooner. Investors might also convert Traditional IRA assets to a Roth IRA while ordinary income tax rates are lower or take distributions from an IRA now and allow assets to grow in a brokerage account for their heirs.
Often, those contemplating significant changes are motivated by fear of what could happen. Instead, investors should focus on what they want from their assets and how they plan to use them. It’s essential to clarify your goals and discuss them with your financial planner, CPA, and estate planning attorney. They can structure your estate plan to reflect your wishes while accounting for potential legal changes.
Consulting experts helps ensure decisions are based not on speculation but on what’s truly best for your situation. They may offer strategies that better serve your family’s and heirs’ tax needs.
If you have questions about how well your plan is prepared to weather potential policy changes, the experts at Henssler Financial are here to help:
- Experts Request Form
- Email: experts@henssler.com
- Phone: 770-429-9166
Listen to the September 28, 2024 “Henssler Money Talks” episode.
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