In last week’s blog, I gave a VERY short and mostly incomplete summary of tax benefits that we have enjoyed since the passing of the Tax Cuts and Jobs Act of 2017. These changes are set to return to pre-2017 rules at the end of 2025, so if there are any moves to be made, it’s time to think about them now.
Because this blog is intended to be short and not induce sudden napping, I’m just going to list some ideas, but not actually explain them. Consider this a springboard for discussion with your CPA and/or financial advisor.
This is NOT personal financial instruction for you to rush out and do. It is meant to be informative and a starting point for considering action.
Plan for income tax brackets going up
- Change your 401(k)/403(b)/457 retirement plan contributions to the Roth option if your plan allows it.
- Take a larger salary from your small business now, and plan to reduce it later if you have that flexibility and control.
- Convert Traditional IRA money to Roth IRAs if that fits in to your total retirement plan.
- Sell appreciated securities in your non-retirement accounts and pay capital gains at a potentially lower rate now than in the future.
Plan for a lower standard deduction
- Plan to make larger charitable gifts after the standard deduction goes down. ONLY consider this if you mostly give to charity because of tax reasons. If you give to charity because you, well, want the charity to have your support, by all means, continue gifting regardless of taxes.
- Push out any miscellaneous itemized expenses for which you could regain the deductions, such as investment/ advisory fees, legal fees, and unreimbursed employee expenses. Again, only if you can reasonably wait to get these services. If you need the advice or to spend the money for your business, don’t just wait for a tax break to do it!
Plan for a lower estate tax exemption
- Gift up to the current maximum annual personal gift limit of $17,000/year before it goes back to the old limit.
- Accelerate 529 college savings account gifts.
- Purchase life insurance through an Irrevocable Life Insurance Trust if you think your family will owe estate taxes under the new lower exemptions.
I cannot emphasize enough that the above are just ideas, considerations, starting points from which discourse can take place. Please do not rush out and do ANY of these things without careful consideration and ideally a chat with your financial and tax advisors!
