How November's election might impact your taxes
Judson Meinhart, CFP?, BFA?, CTS?
I help you get more life out of your money ??? | Financial planner for high achievers who'd rather be golfing | Author: Golfer's Guide to Money
You want to know who will win the election in November.?
But here’s what I’m focused on:
There’s the potential for a monumental tax change in the near future, and who takes office in January of 2025 will tell us a lot.
What should you be doing about it now?
The Tax Cuts and Jobs Act (TCJA) created a lot of changes in 2019
Among the most consequential:
?But that might be coming to an end.?
Unless Congress acts, the provisions in the TCJA will expire at the end of 2025.
This means an almost certain increase in your taxes.
What should you be doing to prepare now?
In this Master the Green you'll learn:
?? 5 moves you should be making now
?? The biggest benefit if the TCJA sunsets
AND
? My secret weapon for golfing in the rain
One part golf, all parts money
Let's tee this one up
Tax Cuts and Jobs Act:? Landmark legislation
The Tax Cuts and Jobs Act (TCJA), which was passed in December of 2018 and went into effect January of 2019, made several significant changes that impacted individual taxpayers
Here are some of biggest changes the TCJA ushered in:
Changes to Tax Rates and Brackets
The TCJA reduced tax rates for most individual income tax brackets. It maintained seven brackets but changed the income thresholds and lowered most rates. The top marginal rate was reduced from 39.6% to 37%.
Standard Deduction and Personal Exemptions
The standard deduction was nearly doubled, increasing from $6,350 to $12,000 for single filers and from $12,700 to $24,000 for married couples filing jointly in 2018. However, personal exemptions were eliminated. For tax year 2024, the standard deduction for single filers is $14,600 and $29,200 for married couples filing jointly.
Child Tax Credit
The Child Tax Credit was expanded in several ways:
The maximum credit amount doubled from $1,000 to $2,000 per child.
The refundable portion increased to $1,400 per child and is increasing to $1,700 in 2024.
Income thresholds for eligibility were substantially raised.
Itemized Deductions
Several changes were made to itemized deductions:
State and local tax (SALT) deductions were capped at $10,000.
The mortgage interest deduction was limited to interest on $750,000 of acquisition debt (down from $1 million).
Many miscellaneous itemized deductions were eliminated.
Estate Tax Exemption
The estate tax exemption was doubled, reaching $11.18 million per individual in 2018 and the maximum is $13.6 million for 2024.
These changes significantly altered the tax landscape for individuals, affecting everything from take-home pay to decisions about itemizing deductions.
Dealing with an uncertain tax future
To add an additional later of complexity, most of these individual tax provisions are set to expire after 2025. But will they??
The United States will swear in a new president in January 2025.?
We don’t know who that will be yet, leaving us only to speculate whether we may be facing higher taxes in the future.? ?
But here’s what we do know.
What the candidates are saying
Neither Vice President Kamala Harris nor former President Donald Trump have indicated that they would let the TCJA expire.
In fact, both have suggested or implied support for extending at least some provisions of the TCJA. Here's what we can gather from the information:
Trump's position:
Trump has strongly advocated for extending the TCJA provisions. He claimed that allowing the TCJA to expire would lead to a "four times tax increase" and "destroy the economy." He has painted Democrats as blocking the extension of the 2017 tax law provisions set to expire at the end of 2025.
Harris's position:
While Harris hasn't specifically addressed the TCJA expiration, her campaign has asserted that if elected, she would maintain President Biden's promise not to raise taxes for households making less than $400,000 a year.
This implies that she would likely support extending at least some TCJA provisions to avoid tax increases on middle and lower-income households.
Where does that leave us?
In a tight spot.?
The current situation with the TJCA expiration is kind of like teeing off with sunny skies but knowing that there’s a threat of a pop-up thunderstorm at some point in your round.?
If you’re threatened with rain, you’re going to pack the essentials –
1. Umbrella
2. Rain Gear
3. Waterproof Shoes
4. Extra Towels
5. And my secret weapon, sandwich bags for your phone, gloves and other valuables
Three tax moves to consider before the TCJA expires
The expiration is largely dependent on the outcome of the 2024 elections. If the TCJA sunsets, tax rates are likely to increase for many taxpayers.
The threat of this impending storm means that with tax rates at historic lows, high-income earners have a unique opportunity to optimize their tax planning.
Here are three key moves to consider:
1. Make Roth 401(k) Contributions
Contributing to a Roth 401(k) allows you to pay taxes on your contributions now, rather than in the future when rates may be higher. This strategy can be particularly advantageous if you expect to be in a higher tax bracket during retirement. Tax-free withdrawals in retirement provide long-term benefits, shielding your growth from future tax hikes.
2. Execute Roth Conversions
Converting traditional IRA funds to a Roth IRA while tax rates are low can be a smart move. Although you’ll pay taxes on the converted amount now, you’ll secure tax-free withdrawals in retirement. This is especially beneficial if you anticipate higher income or tax rates down the road, as it locks in today’s lower tax rate.
3. Use a Donor-Advised Fund to Bunch Charitable Gifts
A donor-advised fund (DAF) allows you to bunch multiple years’ worth of charitable contributions into a single tax year. By doing so, you can exceed the standard deduction, maximizing your tax savings while still supporting your favorite causes. This strategy is particularly effective under current tax laws, where itemizing deductions is more challenging.
By taking advantage of these strategies now, you can make the most of current low tax rates and secure long-term financial benefits.
Is your tax plan ready for all kinds of weather?
Diversification comes up a lot when discussing investments, but it’s also important to be tax-diversified as well.?
Saving all your money into pre-tax retirement accounts, like a 401(k), can leave you vulnerable to higher taxes in the future – kind of like playing golf in the rain without your rain gear.?
If taxes are a blind spot, there's three ways I help people like you:
1.? Ask me anything – Do you have money questions?? Are you over asking friends or the internet for advice?? As a newsletter subscriber, I’m happy to take 30 minutes out of my day to help you.? I'll do my best to be sure you leave with something of value to consider.
2.? Get a one-time financial plan - Over the course of 90 days, we'll strive to help you get financially organized and offer up recommendations to achieve your financial goals.? You'll leave with answers to questions like:
Am I saving enough for retirement?
How can we pay less in taxes?
Do we need life insurance?
3.? Get fee-only financial advice - Hiring a financial advisor is a decision most people only make once in their lives - so we don't take it lightly.? We'll go through a three-step process to show you how we work with clients, and let you make the decision if it's a good fit for you or not.?
If you've never considered hiring an advisor before, this is a great way to see what comprehensive financial planning looks like.
Schedule a 30-minute call to get started today.
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is mentoring solopreneurs to $15k+ months
2 个月Great insight on preparing for potential tax changes! Judson Meinhart, CFP?, BFA?, CTS? Staying ahead of these shifts can make a big difference in how we manage our finances.
4x Founder | Generalist | Goal - Inspire 1M everyday people to start their biz | Always building… having the most fun.
2 个月Raising taxes always feels like a plot twist.