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How To Prepare For The TCJA Sunset in 2025

How To Prepare For The TCJA Sunset in 2025

The Tax Cuts & Jobs Act of 2017 (TCJA) introduced lower marginal income tax rates across all brackets. However, at the end of 2025, the tax provisions within the TCJA sunsets. What do you need to do to prepare for this eventuality?

With the summary guide linked below, you can quickly navigate the upcoming tax changes that will take place at the end of 2025 and start having conversations with your financial advisor, estate planning attorney, and accountant about how their tax planning needs might change. This summary guide covers some key comparisons of the TCJA and Post-TCJA tax numbers, such as:

  • Ordinary income, long-term capital gains, and trust tax brackets.
  • The standard deduction, the return of personal exemptions, and the personal exemption phaseout (PEP)
  • Specific changes to itemized deductions (e.g., SALT, mortgage interest, deductibility of advisory fees, PEASE limitations, etc.) and the child & other dependent tax credits.
  • Alternative minimum tax (AMT) and estate & gift tax lifetime exemptions

Download Summary Comparison Guide

As we approach the end of 2025, you may also want to consider the following strategic financial moves and explore tax-saving opportunities to help mitigate the impact of the anticipated shifts in tax brackets. By understanding and implementing appropriate strategies, individuals can position themselves to adapt to the evolving tax environment with confidence and foresight.

  1. Accelerate Income with Roth Conversions
    • Consider accelerating income with Roth conversions, especially if you anticipate lower income in the years before 2026. This can be advantageous, particularly for married individuals, as the marriage penalty will increase significantly after the sunset in the 25% and higher tax brackets.
  2. Maximize Retirement Contributions and Distributions
    • Contribute to retirement accounts such as 401(k) plans, IRAs, or SEP-IRAs to reduce taxable income and lower tax liability.
    • Individuals aged 70½ or older can donate to charities from an IRA using a tax-free qualified charitable distribution. 
  3. Utilize Capital Gains Tax Rates
    • Strategically realize significant gains from investments before overall individual tax rates increase, as long-term capital gains tax rates are typically lower than ordinary income tax rates.
  4. Consider Business Structure
    • Review the business structure, considering the tax implications, as the corporate tax rate for C corporations is not expiring. This could involve reconsidering partnerships or S corporations.
  5. Utilize Estate and Gifting Planning Strategies
    1. Take advantage of the increased estate and gift tax exemption amount before the 2025 sunset, as the exemption amount is estimated to be cut in half in 2026. Making lifetime gifts now can remove assets from estate taxation and any appreciation on said assets.
    2. Review your charitable giving strategies in light of the sunset provision. Determine whether charitable "bunching" in key years will still make sense, and consider alternative techniques (e.g., consistent annual gifting) you could employ at that time.

By implementing these strategies, individuals can proactively prepare for the changes in tax brackets expected at the end of 2025 when the TCJA sunsets. Click the link below for a full list of issues to consider before and after the TCJA sunset provision occurs. 

Sources: https://www.irs.gov/newsroom/tax-cuts-and-jobs-act-a-comparison-for-businesses

List Of Issues To Consider Before And After The TCJA Sunset

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