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The Tax Cuts and Jobs Act (TCJA) of 2017 is scheduled to sunset at the end of 2025, ensuring most high-income earners will find themselves paying significantly more in taxes in 2026 and beyond (Barring intervention by our future President, and agreement by Congress).

 

For example,

 

A) Without intervention, tax brackets will revert to 2017 levels on January 1, 2026. This is significant.

 

Many high net income earners will find themselves back in the 39.6% tax bracket, or in the 39.6% tax bracket for the first time.

 

In 2017, the 39.6% tax bracket began at $418,400 for single filers, and $470,700 for those filing married filing jointly.

 

In 2024, the 37% tax bracket begins at $609,351 for single filers, and $731,201 for those filing married filing jointly.

 

B) many high net income earners will find themselves once again paying AMT tax, or paying AMT tax for the first time.

 

The 2017 Tax Cuts and Jobs Act (TCJA) included provisions that significantly reduced the impact of the alternative minimum tax (AMT). As a result, Tax Policy Center projects that the number of AMT payers fell from more than 5 million the first year the TCJA was implemented (2018).

 

C) The TCJA temporarily doubled the individual lifetime estate and gift tax exemption to $13.61 million in 2024, adjusted for inflation. If the TCJA sunsets as scheduled, those provisions will decline by approximately half for 2026.

 

D) Without intervention, on January 1, 2026 the Pease limitation is set to return, decreasing amount of itemized deductions that will be allowed on the Federal tax return. This is a big deal.

 

A few of the expiring provisions, assuming our future President and Congress don’t act in the interim, will benefit high-income earners. These include:

 

A) the Federal mortgage interest deduction cap schedule to revert back to interest on up to $1,000,000 (from $750,000 in 2024) and interest on up to $100,000 home equity loan to be deductible.

 

B) Misc. 2% deductions will be allowed, beneficial for those with expensive home office arrangements.

 

Savvy taxpayers intent on minimizing taxes will want to make it a priority to take advantage of every opportunity to minimize taxes in 2024 and 2025, and prepare for January 1, 2026 tax increases if Congress does not intervene. Tax moves to consider may include: ​

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• Pay taxes now with a Roth IRA conversion, capital gains harvesting and other strategies

• Maximize capital gains harvesting opportunities

• Reduce potential estate taxes by gifting or transferring assets

  • Lifetime giving: For 2024, federal law currently allows individuals to gift up to $18,000 per year (and $36,000 for a couple) to an unlimited number of individuals, tax-free. These gifts do not count toward your total federal lifetime gift and estate tax exemption

  • 529 plans: Under special rules, you can “superfund” these college savings plans with a one-time contribution of up to five times the annual gift tax exclusion amount (for a total of $90,000)

• Accelerate taxable income to 2024 or 2025

• In 2025, consider electing to defer a comfortable percentage of your 2026 salary and bonus income if you are at a qualifying status

• Evaluate launching a pass-through business (s corporation, partnership, LLC or sole proprietorship in 2024 or 2025

• Explore options to generate passive income that can be offset with passive losses

• Consider increasing holdings of tax-free investments

   

 NEXT STEPS

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The first step will be to have detailed multi-year and multi-case tax projections prepared for tax years 2024 and 2025 to position for attractive year end tax outcomes.

 

The second step would be preparing 2026 tax projections based on currently enacted 2026 tax implications, and scenarios presented by the Trump / Vance and Harris / Walz campaigns that may have support of our future Congress.

 

We are here to help, and get your questions answered. 

 

Reach out with any questions you may have to optimize opportunities to minimize taxes in 2024 and 2025, and understanding strategies and opportunities that will benefit you once 2026 tax provisions once solidified.