fortune.com Open in urlscan Pro
13.225.142.51  Public Scan

Form analysis
1 forms found in the DOM

GET https://fortune.com/advanced-search

<form class="queryly-form i-amphtml-form" action="https://fortune.com/advanced-search" target="_top" method="get" novalidate="">
  <input class="queryly-input" name="query" value="" placeholder="Search Fortune...">
  <input class="queryly-submit" type="submit" value="Search">
</form>

Text Content

Dismiss Close
Fortune
Cookies and Related Technologies on This Site
Please choose whether this site may use cookies or related technologies such as
web beacons, pixel tags, and Flash objects (“Cookies”) as described below. You
can learn more about how this site uses cookies and related technologies by
reading our privacy policy linked below.
Accept Reject
Privacy Policy

Ad


Fortune Fortune
search
Subscribe Now
 * Rankings
 * Magazine
 * Newsletters
 * Podcasts
 * Video On Demand
 * Fortune Live Media
 * CEO Initiative
 * Fortune Connect
 * Fortune Education
 * Fortune Well
 * Fortune Crypto
 * Fortune Recommends


Personal Finance Taxes


WITH TRUMP’S TAX CUTS EXPIRING, TAXES COULD INCREASE FOR MOST AMERICANS AFTER
NEXT YEAR. HERE’S HOW TO PLAN AHEAD


"PLANNING EARLY IS IMPORTANT."

BY
Alicia Adamczyk
January 10, 2024 1:17 PM EST

Unless the federal government extends the cuts, the majority of Americans will
see their taxes increase in 2026. Getty Images

For the past few years, American taxpayers have lived under a time-limited
reprieve in their federal tax burden thanks to legislation passed at the end of
2017.

Subscribe to unlock this article and get full access to Fortune.com

Try for $1

Already a member? Login

For the past few years, American taxpayers have lived under a time-limited
reprieve in their federal tax burden thanks to legislation passed at the end of
2017.



At the end of 2025, though, time runs out. Unless the federal government extends
the cuts, the majority of Americans will see their taxes increase in 2026.



The potential tax hike is, quite literally, by design. Some history: When
then-President Donald Trump signed the Tax Cuts and Jobs Act (TCJA) into law in
2017, much was made about the fact that the individual tax cuts expired after
2025; but the timing was necessary for the legislation to be passed. The sunset
limited the revenue cost of the TCJA, enabling it to pass the U.S. Senate under
a complicated process called budget reconciliation, the only way Senate
Republicans were able to get the number of votes they needed.

While an expiration date was set for the individual tax cuts, the cuts to
business taxes made in the legislation were permanent: The TCJA reduced the
corporate tax rates, which previously topped out at 35%, to a flat 21% tax rate.
That will continue past 2025.



But back to individuals. The TCJA, then, temporarily reduced most of the seven
marginal income tax rates for the American taxpayer and widened the brackets.
For example, it cut:


 * The 33% rate to 32%
 * The 28% rate to 24%
 * The 25% rate to 22%
 * The 15% rate to 12%

The 35% rate remained the same, as did the lowest rate, 10%.

Significantly, it also cut the highest tax rate from 39.6% to 37% and applied to
it those earning over $500,000 a year, rather than around $427,000 (and $600,000
for couples, up from around $480,000). While the seven federal tax rates in the
U.S. typically don’t change year to year, the income tax brackets applied to
each are tied to inflation; the highest tax rate now applies to single taxpayers
with incomes greater than $609,350, and $731,200 for married couples filing
jointly.

In the first year the changes were implemented, the average federal tax rate
fell from 20.8% to 19.3% for all filers, according to the conservative Tax
Foundation.



If Congress does not extend the cuts, then the 39.6% rate will come back, and
the other brackets will also revert to what they were pre-2017 (adjusted for
inflation). Over 20 provisions from the legislation are poised to expire.

Of course, it’s possible that Congress could come to an agreement to extend the
cuts—raising taxes is never a popular proposition among the American public.


PLAN AHEAD WHILE TAX RATES ARE LOW

Though the potential tax hike won’t happen for two more years, financial
planners are already encouraging their clients to start planning ahead and
making moves to take advantage of the temporarily lower rates.



“If you wait until close to when it happens, you miss out on some
opportunities,” says Jaime Eckels, certified financial planner with Plante Moran
Financial Advisors. “Planning early is important.”

For example, many investors would do well to consider a Roth IRA conversion.
This move involves rolling over funds from a traditional pre-tax IRA or 401(k)
into a Roth IRA. When the funds are rolled over, the investor pays taxes—and
that’s a better deal now, when rates are lower, before they are potentially
increased two years from now. Once the money is converted to the Roth, it grows
tax-free.

Eckels says it’s smart to space out the conversions to avoid raising your tax
bill too much in a single year. So a conversion this year and in 2025 is a smart
move.



There are other moves to consider, including deferring deductible expenses and
front-loading withdrawals from pre-tax accounts over the next two years. A
financial planner or other tax expert can help investors do what makes sense for
them.


OTHER TAX CHANGES THAT ARE EXPIRING

The TCJA made other significant changes to the tax code, including doubling the
standard deduction, or the amount of money taxpayers can subtract from their
annual before income tax is applied. It was raised to $12,000 from $6,500 for
single filers and $24,000 from $13,000 for married filing jointly; a higher
standard deduction means paying less tax overall.

That said, the legislation also eliminated the personal exemption and limited
itemized deductions. Since the standard deduction was made so generous, this was
less of a concern for many tax filers. If the changes sunset in 2026, the
standard deduction will be essentially halved, and itemized deductions will make
a comeback.



In a win for the wealthiest Americans, the TCJA also doubled the federal estate
tax exemption from $5.6 million to $11.2 million for single filers (and double
that for married couples). The tax, which ranges from 18% to 40%, applies to the
portion of assets (including cash, real estate, stocks, and so on) transferred
from a deceased person to their heirs exceeding that exemption threshold.

The exemption is tied to inflation, so it currently applies to assets over
$13.61 million in 2024 (double that for couples). That means if an individual
inherits less than $13.61 million in assets, the estate tax is not a concern; in
2019, just eight out of every 10,000 people who died left an estate large enough
to warrant the tax.

If the TCJA cuts lapse, then the estate tax will revert to pre-2017 levels,
though updated to take inflation into account, around $7 million. It still won’t
apply to many estates, but it will apply to more of them. Financial advisors
have already started encouraging clients with sizable estates to start making
gifts and donations now.

“There’s a lot of thought that needs to go into making these gifts, and a range
of tax planning options to consider, so the two years until 2026 is actually not
a lot of time,” says Bryan Kirk, director of estate and financial planning at
Fiduciary Trust International.



Rankings

 * 40 Under 40
 * 100 Best Companies
 * Fortune 500
 * Global 500

 * Most Powerful Women
 * World’s Greatest Leaders
 * World’s Most Admired Companies
 * See All Rankings

Sections

 * Finance
 * Leadership
 * Success
 * Tech

 * Asia
 * Europe
 * Environment
 * Fortune Crypto

 * Health
 * Well
 * Retail
 * Lifestyle
 * Politics

 * Newsletters
 * Magazine
 * Features
 * Commentary

 * MPW
 * CEO Initiative
 * Conferences
 * Personal Finance
 * Recommends
 * Coupons

Customer Support

 * Frequently Asked Questions
 * Customer Service Portal
 * Privacy Policy
 * Terms of Use
 * Single Issues for Purchase
 * International Print

Commercial Services

 * Fortune Brand Studio
 * Fortune Analytics
 * Fortune Conferences
 * Advertising
 * Business Development

About Us

 * About Us
 * Editorial Calendar
 * Work at Fortune
 * Behavioral Advertising Notice
 * Terms and Conditions
 * Site Map

 * Facebook
 * Twitter
 * Linked
 * Instagram
 * Pinterest

© 2022 Fortune Media IP Limited. All Rights Reserved. Use of this site
constitutes acceptance of our Terms of Use and Privacy Policy | CA Notice at
Collection and Privacy Notice | Do Not Sell/Share My Personal Information | Ad
Choices 
FORTUNE is a trademark of Fortune Media IP Limited, registered in the U.S. and
other countries. FORTUNE may receive compensation for some links to products and
services on this website. Offers may be subject to change without notice.
S&P Index data is the property of Chicago Mercantile Exchange Inc. and its
licensors. All rights reserved. Terms & Conditions. Powered and implemented by
Interactive Data Managed Solutions.