By Jeffrey R. Wolfe, Senior Vice President and Manager, Wealth Planning Strategies
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Markets are hitting new highs as we come to the end of the year. We also have a new president and reconfigured Congress. These events, coupled with year-end planning, make now a great time to look at your portfolio to see if there may be opportunities to pay less in taxes or pay taxes at a lower rate. Looming over all these issues, though, is the fact that the Tax Cuts and Jobs Act of 2017 (TCJA) is set to expire at the end of 2025, unless Congress acts otherwise. That sunset, should it occur, would mean higher tax rates in 2026 for most taxpayers.
Start by reviewing your portfolio and your other investments, along with your projected income, to see where you may find yourself on the tax bracket spectrum. Once you’ve estimated where you are, work with your tax advisor to see whether you should take or defer certain gains or deductions in this year or the next.
For example, you may be able to take a gain on an investment this year or postpone it until January. If you think your tax rate will be lower next year, it may make sense to postpone the gain until 2025. Similarly, if you are considering making a charitable donation and you expect your income (and tax rate) to be lower next year, consider making the donation this year to offset your higher tax rate for this year. If you pay state estimated taxes, you could make your last quarterly payment in December rather than January to take the deduction this year. Ultimately, if you can control when to take a gain or deduction, choosing the appropriate time to take such actions can help you control your potential tax liability year over year. You should also extend your view on these issues given the possibility of the TCJA sunsetting after 2025.
We continue to have high standard deductions moving forward to 2025. These considerations are especially critical to review when considering what may happen in 2026. Recall that the standard deductions for 2024 are $14,600 filing single; $29,200 married filing jointly. The 2025 deductions increase to $15,000 single/$30,000 married, and itemized deductions remain limited as well. Charitable gifts, mortgage interest, and state and local taxes (with a cap on state and local deductions being $10,000) comprise most itemized deductions. However, should the TCJA sunset in 2026, standard deductions will drop to 2017 levels (indexed for inflation), but personal exclusions and many miscellaneous itemized deductions return, and the SALT limitations go away.
While many think most Americans will see an increase in tax liability should the TCJA sunset, those with variable gains or deductions may have options. Accordingly, consider reviewing your options this year-end, make some educated assumptions for next year-end, and try to determine if taking or deferring gains or deductions may be affected by these issues.
These are complicated and time-sensitive decisions. Please remember that Benjamin F. Edwards does not provide tax advice, so it is important to consult with your tax professional for guidance tailored to your specific situation. Doing so may lessen the tax blow for this year and years to come.
IMPORTANT DISCLOSURES: The information provided is based on internal and external sources that are considered reliable; however, the accuracy of this information is not guaranteed. This piece is intended to provide accurate information regarding the subject matter discussed. It is made available with the understanding that Benjamin F. Edwards is not engaged in rendering legal, accounting or tax preparation services. Specific questions on taxes or legal matters as they relate to your individual situation should be directed to your tax or legal professional.