By Adam Brooks, CFP®
Many of the laws established in the 2017 Tax Cuts and Jobs Act (TCJA) are expiring in 2025. Is it time to take action? Absolutely! Unless Congress steps in, many of the changes introduced by the (TCJA) are set to come to an end on December 31, 2025.
This is the perfect time to start reviewing your estate plan and personal tax situation to help boost your tax savings before the sunset. While future legislation could alter or extend these provisions, it’s important to stay informed about the wealth transfer and income tax planning opportunities available.
Read on to prepare yourself for the adjustments in 2024 and 2025 and align these changes with your financial goals.
Individual Taxes
Let’s start with an explanation of how the 2025 Tax Sunset could affect individual taxpayers.
- Lower income tax brackets: The lower tax brackets that were put in place by the Tax Cuts and Jobs Act (TCJA) will revert to pre-2017 levels. That means that millions of taxpayers could potentially be pushed into higher tax brackets.
- Decreased standard deductions and personal exemption: By decreasing both standard deduction amounts and personal exemptions, the 2025 Tax Sunset could cause higher taxable income for individual filers.
- Child tax credit: Currently, the child tax credit provides a dollar-for-dollar reduction of your tax liability for each qualifying child; this allowance would expire under current regulation.
- State and local tax (SALT) deduction cap: If the current $10,000 cap on deductions for state and local taxes expires, residents in high-tax states like California, New York, and New Jersey could benefit. The downside is that eliminating the deduction cap could potentially shift the tax burden to the federal government.
Business Taxes
Here’s a snapshot of how the 2025 Tax Sunset could impact business taxes:
- Full expensing of deductions: This temporary condition that allows instant expensing of business expenses would expire. For affected businesses, the result would be increased taxable income.
- Pass-through business income deductions: This tax provision allows the deduction for income from pass-through businesses like partnerships and S corporations. When this law expires, the tax liability for many small businesses could increase.
- Bonus depreciation: Businesses that invest in equipment and machinery will be impacted when this deduction for specific depreciable property disappears.
Opportunities to Consider
Even though the uncertainty of these changes can feel unsettling, there are opportunities to consider, like Roth conversions and estate planning, to take advantage of the current favorable tax rates and exemptions. Taking action now could help you enhance your financial position before these changes occur.
Roth Conversions
If you anticipate lower income before 2026 due to retirement or other changes, consider accelerating income through Roth conversions to benefit from lower tax rates. This strategy is particularly beneficial if you’re married, as the marriage penalty will significantly increase in the 25% and higher tax brackets after the sunset.
A Roth conversion allows you to convert pre-tax retirement funds into a Roth IRA by paying taxes now, ideally at a lower rate than in the future. If the current tax rates do expire after 2025, completing a Roth conversion in the next two years could save you thousands in taxes and allow your money to grow tax-free.
Estate Tax Exemption
Before the 2025 sunset, it’s wise to consider the increased estate and gift tax exemption if you have a sizable estate. The exemption amount will be reduced by half in 2026, potentially subjecting estates in the $7-$13 million range to taxation. Making lifetime gifts now can help you take advantage of the current higher exemption, removing assets and their future appreciation from estate taxation. Also, regulations mean that gifts made during this period won’t be subject to a clawback, allowing your estate to benefit from the exemption amount at the time of the gift.
Take Action and Prepare Today
An effective way to ready your finances for the potential changes resulting from the 2025 Tax Sunset is to seek advice from a professional financial advisor. At ABLE Financial Group, our team examines your income tax records, expenses, and the effects of your investment choices on your current and future tax obligations. If you prefer, we can collaborate with your tax advisor to align your financial plan and prepare for these changes.
Whether you’re an individual tax filer or a business owner, if you’re ready to partner with us to get your finances ready for the upcoming 2025 Tax Sunset, you can contact by calling 480.258.6104 or emailing [email protected] today.
About Adam
Adam Brooks is Managing Director at ABLE Financial Group, a financial services practice that focuses on transition planning and simplifying the complexities of their clients’ wealth. As a CERTIFIED FINANCIAL PLANNER® practitioner, Adam has been guiding individuals, businesses, and non-profit organizations toward their financial goals since 1993. Co-founding ABLE Financial Group in 2006, Adam oversees the practice, working with business owner clients, primarily focusing on succession planning and mergers and acquisitions (M&As).
Adam obtained degrees in finance and accounting from the University of Arizona and holds the CFP® certification. Adam was recognized as one of Barron’s Top 1,200 Financial Advisors in 2021 and 2022, and was named a 2022 Forbes Best-in-State Wealth Advisor. Outside of his work as a financial advisor, Adam has taught a variety of courses at surrounding community colleges, including Successful Money Management Seminars and Rich Dad’s Cash Flow courses. Adam also previously hosted a radio show called The Truth About Money.
When not serving his clients, Adam actively serves his community in a variety of leadership positions. In 2011, Adam and co-founder Lee began funding the ABLE Financial Group Philanthropic Fund at the Jewish Community Foundation, allowing them to support some of their favorite organizations and causes today and into the future. Adam lives in Scottsdale with his wife, Cindy, their three sons, Jordan, Dylan, and Cameron, and their two dogs, Nelson and Sunny. Adam is active in his children’s lives, an avid cyclist, and enjoys local hikes with his family. To learn more about Adam, connect with him on LinkedIn.
