The Tax Cuts and Jobs Act (TCJA) is poised to expire on January 1, 2026, creating possible complications for tax and estate planning if tax laws change. Legal advisors specializing in estate planning urge clients not to delay planning for possible significant changes to current tax benefits. They propose flexible strategies that can adjust to any new legislation.
The TCJA, introduced in 2017, resulted in record-high exemptions for estate, gift, and generation-skipping transfer at $13.61 million per U.S. citizen. It also impacted corporate tax rates, reducing them from 35% to 21%. The influence varied for individual taxpayers, with some receiving initial tax savings while others faced increased liabilities due to a cap on deductible state and local taxes.
In the event of non-extension, these exemptions are likely to revert to their pre-TCJA values from January 1, 2026. This potential shift could significantly decrease the exemption values, interfering with estate planning. It is, therefore, critical to consider this change during estate and financial planning. Tools like trusts or gifts may require revision to adapt to these changes.
Preparing for possible tax cuts end
Individuals and families may need to reassess their plans to bypass tax liabilities and wealth transfer disruptions.
The current exemption amount provides an optimal situation for estate planners and tax practitioners. However, failing to take action before the TCJA expiry could result in missed savings opportunities. The potential decrease in exemptions after the TCJA expiry necessitates consultation with financial advisors to understand the implications of current laws fully.
There are also speculations related to whether President Donald Trump would extend his tax laws provided under the TCJA, if reelected. On the other hand, there is anticipation about whether President Joe Biden would adopt former President Obama’s approach to the Economic Growth and Tax Relief Reconciliation Act of 2001, should he be reelected. Regardless, maintaining the existing tax exemptions provided by the TCJA could be difficult.
For those engaged in significant tax and estate planning transactions, early action is recommended to fully benefit from the current tax exemptions. Renowned professionals specializing in the TCJA may be overwhelmed with requests as individuals and businesses seek to maximize their tax savings before the upcoming expiry. There could be a rush, increasing demand for these professionals making it harder to secure their services. Therefore, starting the tax and estate planning processes early is advised to fully benefit from the current tax breaks.
