A Window of Opportunity

Unless Congress acts, individual tax rates will be increasing in 2026, making 2024 and 2025 potentially crucial years to take advantage of favorable tax rates before they’re gone.

The Tax Cut and Jobs Act of 2017 (TCJA) made sweeping changes to the tax code. For most families and individuals, the most impactful changes included reduced income tax rates and an increased standard deduction. With the TCJA sunsetting at the end of 2025, tax rates and estate tax exemption limits will return to their indexed 2016 levels, barring any congressional action. To add another potential twist, post-election policy changes could be unpredictable due to both front-running candidates operating in their second term without concern over reelection. The window to take full advantage of the current environment may be closing, so here are a few ways to benefit today:

Roth Conversions & Contributions

Paying extra attention to your Roth IRA and Roth 401(k) accounts is crucial.

• Unlike IRAs, Roth IRAs do not have required minimum distributions; therefore, your money can grow tax-free longer, and you may be taxed less today than you would in 2026 on the amount converted.
• Consider contributing into the Roth bucket of your 401(k). A diversified arsenal of pre-tax, post-tax, and tax-free monies is a great weapon against uncertainty.

Estate Planning Opportunities

The lifetime estate tax exemption is set to return to pre-TCJA levels. Currently, each person is allowed to give gifts of $13.61 million tax-free, as well as their annual gift-tax exclusion of $18,000. The final number hasn’t been set, but the exemption before the TCJA was around $5.5 million.

• Consider utilizing your $13.61 million ($27.22 million if married) exemption now if you anticipate having a taxable estate in the future. Taxable estates are taxed at 40% (not including state tax if applicable!), so each dollar counts.
• Charitable giving also doubles as a tool for estate planning. By removing assets from your estate, especially appreciated securities, you can avoid capital gains taxes later and receive a deduction now. If you are taking RMDs, consider qualified charitable distributions, which are tax-free and count toward your RMD.

Income Tax Implications

The standard deduction was increased significantly by the TCJA. In 2026 and beyond, the standard deduction will be about half of what it is now. Please note:

• The state and local tax deduction cap ($10,000 under the TCJA) is slated to sunset. Taxpayers in high-tax states such as NY and CA are most certainly looking forward to this change.
• The standard deduction reduction will also harm tax planning opportunities like the Roth conversions mentioned above, as the taxpayer will have a shorter runway of tax-free income.

These are just a few strategies you can leverage during this window of opportunity presented by the Tax Cut and Jobs Act of 2017. Provisions affecting income tax rates, standard deductions, and estate tax exemptions make 2024 and 2025 pivotal years for tax planning, and with individual tax rates set to increase in 2026, it's crucial to act now to maximize your benefits.

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“Advisory services offered through The Nemes Rush Group LLC. Securities offered through J. Alden Associates, Inc., member FINRA/SIPC. The Nemes Rush Group LLC and J. Alden Associates Inc. are not affiliated. The information presented is for informational purposes only. Please consult your tax professional to determine the tax effects on your personal situation prior to making any investment.”