Tax Planning Strategies to Consider Before 2025: Expert Advice

Tax Breaks Under Threat: How Congress’s Inaction Could Impact Your Wallet

As the clock ticks towards 2025, a looming threat hangs over taxpayers across the country. If Congress fails to take action, tax breaks introduced under the Tax Cuts and Jobs Act (TCJA) will expire, potentially leading to increased taxes for more than 60% of filers, according to the Tax Foundation.

With uncertainty surrounding control of Congress and the White House, the fate of these provisions remains unclear. However, financial experts are urging clients to start planning now to avoid last-minute scrambling in 2025.

Certified financial planner Jim Guarino emphasized the importance of focusing on the fundamentals of tax planning early on. Without advanced preparation, taxpayers may find themselves resorting to desperate measures at the last minute.

One strategy being discussed is accelerating income before 2025 to take advantage of the temporary lower tax rates and expanded brackets introduced by the TCJA. Retirees, for example, may consider taking early or increased pre-tax retirement account withdrawals to maximize these benefits.

Another tactic is to explore Roth individual retirement account conversions, which allow for the transfer of funds to a Roth IRA for future tax-free growth. While this strategy incurs upfront taxes, it can result in smaller bills during lower tax years.

However, taxpayers need to be cautious about triggering additional taxes or affecting deductions and credits with increased income. Making quarterly tax payments may also be necessary to avoid penalties.

For high-net-worth families, the raised gift and estate tax exemption is a critical provision that will revert to lower limits after 2025. Making lifetime gifts before these thresholds expire can help individuals or couples remove assets from their estate.

As the deadline approaches, financial advisors are urging clients to consider these strategies to navigate the potential tax changes on the horizon. Planning ahead could make all the difference when it comes to protecting your wallet from increased taxes in the future.