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How to Save $2.6 Million in Taxes!

March 22, 2024

The Tax Cuts and Jobs Act of 2017 (TCJA) reduced taxes that Americans pay on a wide variety of measures. However, these provisions are scheduled to sunset December 31st, 2025, meaning there is less than 2 years to take advantage of these lower taxes before they revert to the higher taxes that existed prior to the TCJA (unless congress acts to extend them). Let’s take a look at some of the ways you can save significant taxes before the sunset date.

Take Advantage of the Much Higher Gift and Estate Tax Exemption

Before the TCJA, the estate tax exemption was $5 million. Once passed, the Act doubled the estate tax exemption amount (which also applies to gifts) to $10 million. With increases due to inflation, the exemption today stands at $13,610,000. A married couple can give away as much as $27,220,000 without incurring the 40% estate or gift tax. Once January 1st, 2026 rolls around, those amounts will be cut in half unless Congress makes changes before then. If the estate and gift tax exclusion amount does get rolled back to the pre-TCJA amount it will be reduced to around $7 million- meaning a taxpayer would save themselves $2.64 million in estate taxes by using today’s high exemption amount instead of just waiting until the exemption gets rolled back in 2026.

Remember, unless you’ve taken advanced measures to hold assets outside your estate, all real property (homes, rental and commercial properties), investments, IRA’s, businesses, life insurance proceeds etc. are included in valuing your estate for estate tax purposes. You may have more than you think!

Take Advantage of Lower Tax Brackets to Pay Less taxes

Another feature of the TCJA of 2017 is that it reduced the tax rates that taxpayers pay on taxable income- particularly in the 4 lowest tax brackets. For example, the tax rate for married filing jointly with taxable income between $77,400-$156,150 went down from 25% to 22% tax rate and saw that tax bracket expanded to include those making up to $165,000. Those in the next tax backet saw their tax rate go down from 28% to 24% and again this tax bracket was expanded to include those with much higher taxable incomes (up to $315,000)- folks that had previously been in the 33% tax bracket!

What this all means is that we may have less than 2 years to take advantage of these lower rates to do our tax planning for such things as Roth conversions, taking lump sum distributions from retirement accounts, receiving bonus income from employment (including self-employment), receiving rents, royalties, interest payments etc.

It’s too late to do much about 2023 taxes. Now is the time to start the ball rolling to reduce taxes for the next 2 years and beyond!