In the absence of Congressional action, multiple provisions of the Tax Cut and Jobs Act (TCJA) will expire at the end of 2025, and tax rules will revert to what they were before the legislation. The TCJA reduced specific tax brackets and increased the standard deduction. Certain charitable gift deductions moved from 50% to 60%. Additionally, the personal exemption phase-out and the limitation on itemized deductions for some filers were eliminated.
The Tax Cuts and Jobs Act simplified many aspects of tax planning and created opportunities. As a result, some tax techniques are more effective now than in the past.
Retirement Tax Strategies to Try Now
- Roth Conversions: Once clients reach their required minimum distribution (RMD) age, they may have some dollars falling into tax brackets higher than if they leveled their expected tax bracket over their lifetime.
- Optimizing Harvesting Patterns: You can help clients determine which accounts they should withdraw from at which point in retirement. Sometimes it makes sense to spend money from IRAs early, even if it's going to create a little bit of tax liability so that it doesn't create a more significant tax liability later.
- Charitable Giving: The Tax Cuts and Jobs Act increased the amount you can contribute as a percentage of Adjusted Gross Income (AGI) from 50 to 60%.
Although these techniques will still be applicable if the TCJA sunsets, they won't be as beneficial. Over the next three years, there is an opportunity to do some excellent tax planning for clients that will significantly impact their retirement. And while new tax legislation may be passed between now and the end of 2025, we are unlikely to see lower tax rates.
Tax Clarity® allows you to show the impact of the Tax Cuts and Jobs Act sunset with the click of a button. You can easily demonstrate the effect of a tax technique now versus three years from now when the provisions expire. Use the software to show clients how you can help them make smarter decisions regarding taxes in retirement. Start a 10-day free trial now and see how much easier retirement tax planning can be.