Tax Reform Sunset
Can you hear it? It’s those two, ominous notes from the movie Jaws to let you know we are drawing nearer and nearer to the almost inevitable…the sunset of the Tax Cuts and Jobs Act (TCJA) of 2017. This could mean that higher income taxes and estate taxes are headed your way.
It’s important to note that there were only a few things that were made permanent with tax reform. The rest of the provisions are scheduled to sunset to the 2017 rules. Most of which happens on December 31, 2025.
So first, let’s address why it is almost the inevitable that TCJA will sunset. Then, we can look at what is currently being proposed by each presidential candidate in relation to tax reform. Last, we’ll highlight the things you need to be thinking about.
It is no easy feat for these provisions to be extended or for new provisions to take their place. The House of Representatives, the Senate, and President have to be in agreement for this to happen. Even if all three are led by the same party, they still have to agree. If recent history is indicative of anything, the likelihood of a collective agreement seems slim.
The current president, if re-elected, would like to see the sunset and increase taxes in areas like capital gains, estate taxes, 1031 gains, carried interest, corporate income tax, net investment income tax, the top tax bracket, retirement accounts, etc. There are also areas he would lower taxes such as extending the child tax credit and making it permanent and expanding the earned income tax credit. The bottom line, though, is this: His proposal will most likely not happen if the House or the Senate is held by the Republicans.
If the former president is re-elected, he would like to, at least, see the TCJA made permanent. He has also thrown around other proposals like reducing the corporate tax rate by 1% more, exempting tips from income taxes, and even eliminating income taxes entirely and replacing this income through increase tariffs. Once again though, his proposal will most likely not happen unless the House and Senate agree with it.
By the way, The Tax Foundation put out a great read on this. You can find that here.
So, what does this mean for you?
PLAN NOW!
Here are some questions that you need consider:
1. If you are a business owner, how will the loss of qualified business income deduction affect you?
2. What will your income tax look like? Will it be higher with stricter brackets and higher rates?
3. You might want to kick the bucket in 2025. This is a joke of course, but if the estate and gift tax exemption is slashed in half at the sunset, what will that mean for your family when you die?
When faced with these questions, what do you need to get done now to minimize the ramifications?
Perhaps you need to be converting as much as you can to a Roth IRA. Perhaps you need to address the tax planning for your business that you have put off again and again. Perhaps you need to get help to get unstuck about how to address your estate and the taxes your family could face.
It is time to use it or lose it. So many things can be done today, such as preserving the estate and gift exemption, which is currently over 13 million, but time is running out.
Remember this—we are enjoying the lowest taxes in our country’s history and have the most debt in our country’s history. The sun is likely to set and may not rise again. This is worth your time and effort, so don’t delay.