Bet you don’t remember this!

Those Trump Tax Cuts (Tax Cut and Jobs Act.   They weren’t permanently endowed.  No, those provisions expire at the end of the calendar year 2025.

That means tax rates, estate taxes, and gift taxes will all revert to what obtained in 2017.  Even the pesky SALT provisions that won’t let us deduct more than $ 10K in state and local taxes (SALT).

Tax Rates and ROTH Conversions

 That means we should be considering things we can do to protect ourselves from the jump in rates and rules.  Especially if one is near (or considering) retirement.  The top tax rate will jump from 37% to 39.6%.  That means converting your retirement to a ROTH Ira is a good idea- to get it done now.  Sure, you will be hit with a lump sum tax bill- but it will be a heck of lot less than if you wait to do so until 2026.  Moreover, there is a five year waiting period before you can withdraw your ROTH funds tax free- which means if you do it now, then you can pull your money out without owing taxes on them in 2028.  Which also means you will need money to cover any years you need retirement funds before that year.

For the pretty very rich folks

Right now, we can transfer $ 12.92 million to our beneficiaries ($25.84 million if we are a couple) without paying any estate taxes.  If we transfer more than that, then the estate tax bite comes into play, at a rate ranging from 18% to 40%.  That’s only true as long as the Trump Tax rule applies.  Once it expires, then the estate limits are closer to $ 7 million ($13 million for a couple), before those tax bites come into play.

Now remember- this is not just what we have in investments, but our total assets.  That means McMansions, rental real estate, and the like.  IT becomes a lot easier to hit those lower thresholds then.

Or, you could set up a trust to transfer assets.  These include spousal trusts (surviving spouse has no tax bill), or developing a trust for one’s children (which means the funds can also grow without being subject to estate taxes).   You also need to balance your assets with what you will need for retirement and what you want to leave for your kids.  So, now is the time to get these vehicles in order!

Gifts

Under the Trump Tax laws, we can give away $ 17K a year ($34K, if married) to a bunch of beneficiaries (or just one of them)- and not incur a penny in gift taxes.   Moreover, that does not count towards our overall gift and estate tax exemption.

The law also has a provision for 529’s (qualified educational savings plans)-  we can front end load up to five years of cash gifts (means $ 85K for singles or $ 170K for couples) in one fell swoop.  That shrinks the size of our estate and lets the 529 plan frow larger (due to its higher principal balance) and stay tax free.

Charity

Another provision of the Trump Tax law is that we can donate up to 60% of our adjusted gross income.  That’s a 10% increase from what obtained prior to the law’s passage- and to what it will return in 2026.

Corporate Taxes

 Right now corporate taxes are 21%.  Thanks to the Trump Tax laws.  IF our income is $ 50K or less, we will actually see our tax rate drop to 15%.  But for every dollar over that threshold, our business tax rate will increase to 25%, 34% ($75K or higher), or 35% (for $ 10KK and above).

That’s a pretty big bite.

You might want to consider converting the corporation to a pass-through, if you personal rates will be lower. The personal tax rates will be 25% if a couple has $ 90 K in adjusted gross income and 35% (much higher) when the adjusted gross is $ 260K or above.

And, the special depreciation rules have already begun rolling back, so we don’t get to write off as much of our newly acquired assets as when the Trump Tax cuts first took effect

What are you waiting for?  The time to plan is now. You have 805 days!