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Make These Moves Before Your Trump Tax Cuts Expire

February 26, 2024

4 min Read

Written by Teddy Garcia

Edited by Melanie Grafil

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The Trump Presidency saw a wide range of changes to the tax code, including the Tax Cuts and Jobs Act, which many refer to simply as the Trump tax cuts. However, many of those changes are set to expire come 2025 unless renewed. With the prospect of renewal still uncertain, many Americans should consider preparing for the potential impact today.

What Is the Tax Cuts and Jobs Act?

The Tax Cuts and Jobs Act was a major overhaul of tax regulations that was signed into law by President Trump on December 22, 2017. It brought about a wide range of changes, including both corporate and individual taxes. Any given individual might have experienced changes based on income level, filing status and deductions.

Income Tax Bracket Changes

The tax cuts included a reduction in income tax across five of the seven income tax brackets, with the other two remaining the same. The act also nearly doubled the standard deduction for married couples filing jointly, single filers and heads of households, increasing the portion of income that isn’t subject to tax.

Specific tax brackets are adjusted each year to stay in line with inflation. For 2024, tax rates are as follows for single filwers:

10% on taxable income up to $11,600
12% on taxable income over $11,600
22% on taxable income over $47,150
24% on taxable income over $100,525
32% on taxable income over $191,950
35% on taxable income over $243,725
37% on taxable income over $609,350

If the tax cuts are not renewed, these brackets will return to their previous rates of 10, 15, 25, 28, 33, 35 and 39.6%, respectively. This could mean that many Americans will see their taxes rise by between 1 and 4% in 2025.

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Given that income tax may increase in the near future, it may be advisable to consider strategies that take advantage of current conditions, such as a Roth IRA conversion. Converting a portion of retirement savings to a Roth IRA today will incur a one-time tax bill on the sum, which will be lower now than after the tax cuts revert.

Estate and Gift Tax Planning

Another significant change brought about by the Trump tax cuts was a major increase in the threshold for estate tax. Prior to the act, the highest rate of 40% applied to individual estates over $5.6 million or joint estates over $11.2 million. The act doubled those thresholds to $11.2 million and $22.4 million, respectively.

If the tax cuts are not renewed, these thresholds will revert. However, the thresholds are adjusted for inflation, so the new values would be approximately $6.8 million and $13.6 million respectively. Given the substantial impact of these changes, anyone with taxable estates in this range should consider reviewing their estate plans.

Some guidance from the IRS suggests that significant gifts may be an effective strategy to avoid the risk posed by the reverting estate tax. Taking advantage of current gift exemption amounts could potentially bring an estate below the new threshold. However, this is a complex and rapidly changing situation that might require professional estate advice to effectively plan for.

Current conditions are highly conducive to giving tax-free gifts to a wide range of beneficiaries. Individuals can gift up to $17,000 annually per beneficiary to as many beneficiaries as they choose, and that increases to $34,000 for married couples.

The act also allows for front-loading up to five years of gifts when contributing to 529 education-savings plans. This means that individuals and married couples can contribute up to $85,000 and $170,000 respectively per beneficiary at one time before the tax cuts revert.

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The tax cuts also increased the cash contribution annual deduction limit for public charities to 60% of gross income, up from 50%. This change would also revert if the tax cuts are not renewed, so now may be the best time to make major charitable donations from a tax perspective.

Final Take

While it’s still not clear whether or not the Trump tax cuts will be renewed or revert back to previous standards, the time to prepare is now. Those approaching and entering retirement should take the time to meet with tax professionals, financial advisors or other professionals to find a plan that works for them. While every financial situation is unique, the right support can provide a tailored plan that’s ready for whatever the future may bring.

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