The information being provided is strictly as a courtesy. When you link any of these websites provided herewith you are leaving this site. Our company makes no representation as to the completeness or accuracy of information provided at the sites. Nor is the company liable for any direct or indirect technical or system issues or any consequences arising out of your access to or your use of third-party technologies, sites, information and programs made available through the site. When you access one of these sites, you are leaving InFocus Financial Advisors’ website and assume total responsibility and risk for your use of the sites you are linking to.
SubmitChange of the Seasons
September and October on Delmarva means things are changing. Weather, color on the leaves, and the groans about the declining frequency of “beach weather.” The Tax Cuts and Jobs Act (TJCA) was signed into law on December 17th, 2017, and brought about significant changes to the tax code for nearly every American. Often built into new legislation to pass under budget muster are “sunset” dates or a date at which such a law will expire pending any extension. At current, TJCA will sunset on December 31st, 2025, meaning most Americans will wake up New Year’s Day in 2026 to a new financial season.
The most notable effect on most Americans will be the reversion back to 2017 rates and brackets. Most marginal brackets will increase by 2-3%, and brackets will narrow. In short, individual income taxes are going up in most cases. Two other provisions that will garner significant attention are the reduction of the “standard deduction” back to ½ of the current level and the possible elimination of the $10,000 state and local tax deduction (SALT). For many of our clients at or near retirement, this likely means taxes are going up.
As we prepare for what may be the plain vanilla “expiration” of these cuts, we’ve recommended that clients review their long-term tax strategy to determine if it makes sense to take advantage of the last 14 months of what is likely “lower taxes.” This could include accelerating income tax via distributions from IRAs or other qualified accounts, partial Roth IRA conversions, or realizing capital gains at a rate advantageous to you. A straightforward method of saving money in taxes is by paying the lowest rate you can – when avoiding it is impossible. So, for many people, that may mean it is as cheap today as it will be until January 1st, 2026.
It should go without saying that the major underlying assumption is that Congress fails to enact new legislation or extend the existing tax cuts. This isn’t an attempt to read tea leaves or handicap the odds of that happening. There is an election happening in 60 days, and that could absolutely change the facts of whether these cuts get extended, or tax policy receives an overhaul prior to January 1st. Any major tax decision should be carefully reviewed with these pending changes in mind.
Thankfully, taxes in this country don’t change as often as the seasons. However, much like you’re pulling those sweaters and jackets out of the closet, you should consider what these legislative changes may mean for your situation. If you are worried about your tax strategy in retirement, we offer an initial one-hour consultation that can give you some guidance on opportunities to minimize your taxes and increase your net worth.