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Americans should consider their tax strategies now ahead of potential changes at the end of 2025, experts warn.

Trump-era legislation brought in by the Tax Cuts and Jobs Act in 2017 made sweeping changes to the tax landscape. 

This included lowering individual income tax rates, almost doubling the standard deduction and raising the federal estate tax exemption. 

Unless these rules are extended, they will expire on January 1, 2026, sparking major changes for millions of taxpayers across the US.

Now is the time to plan ahead, experts warn, in order to be prepared for changes down the line – and to avoid being stung with a surprise bill. 

Trump-era legislation brought in by the Tax Cuts and Jobs Act in 2017 brought sweeping changes to the tax landscape 

Income tax brackets will revert to the higher pre-2017 levels when the current law expires at the end of 2025 – affecting most taxpayers. 

‘We’re in a relatively favorable tax environment today for both high and low income earners, compared to historic income tax rates,’ investment advisor Patrick Donnelly told DailyMail.com earlier this year. 

‘Our current tax legislation is due to expire, so we already know that tax rates will be going up by 3 to 4 percent for most households in a matter of a few years,’ he said.

People who are approaching retirement may want to convert some of their savings into a Roth IRA before income tax rates rise, experts advise. 

They will receive a single lump-sum tax bill on the conversion, but this will be at a lower rate than if they wait until 2026. 

A Roth IRA or 401(K) is funded with after-tax money, while a traditional plan allows you to make contributions before taxes.

‘If you save for retirement in a Roth now, you are essentially hedging against those higher tax rates in the future. This makes Roth IRAs the most powerful wealth building tool we have at our disposal at this point,’ Donnelly added. 

Americans must wait five years before they can withdraw earnings from a Roth IRA plan tax-free, so retirees should be sure they have enough savings to cover that period if necessary. 

People who are approaching retirement may want to convert some of their savings into a Roth IRA before income tax rates rise, experts advise

Under current rules, an individual can transfer $12.92 million and a married couple can transfer $25.84 million to heirs before they are slapped with federal estate taxes. 

The Trump tax plan more than doubled the lifetime estate tax deduction from the 2017 value of $5.49 million for individuals up to $11.18 million – and this has continued to increase in the years since. 

Depending on who ends up controlling the White House and Congress after the 2024 presidential election, the tax law could expire. 

If that happens, the exemption could be effectively halved, leaving an individual with a taxable estate worth more than approximately $7 million subject to federal estate taxes if they do not plan ahead. 

Although that may seem like a high figure, Kevin O’Regan, senior wealth adviser at Kayne Anderson Rudnick, told The Wall Street Journal many of his clients are surprised to learn that they could be exposed to these levies.

‘We’re reminding our clients that they have to consider their total assets – not just what is in an investment account,’ he told the outlet. 

‘Once you factor in the appreciation of, say, a primary residence, as well as the growth of an investment account over time, the impact of estate taxes could be significant.’

He said that if an individual or couple has not used up the exemption yet, creating a trust is one way to transfer assets that might be subject to taxes if the law changes. 

‘We work with folks on thinking through what they realistically need for retirement and then what they want to set aside for a beneficiary,’ he said.

‘There are a variety of strategies that can be used, depending on whether someone wants the assets in the trust to grow over time or if they are trying to freeze the value of certain assets at current rates.’

Experts warn now is the time to act in order to avoid being caught out by tax changes later

Americans can also shrink the size of their assets by giving away assets – or gifts – while they are still alive. 

The 2017 tax legislation includes a special break for ‘529’ education-savings plans.

This allows people to front-load five years’ worth of cash gifts – up to $85,000 per beneficiary for individuals and up to $170,000 for couples – into a single contribution. 

A 529 plan is an investment account that offers tax benefits when used to pay for qualifying education expenses for a beneficiary – including college tuition, apprenticeship programs, and student loan repayments.

Maxing out this break could be worth considering as a way to shrink the size of a taxable estate. 

The Trump-era changes also increased the amount of charitable contributions that can be deducted from 50 percent of adjusted gross income to 60 percent. 

This limit may go back down at the end of 2025.

Experts suggest that any Americans considering a significant cash donation to a public charity should do so now to receive a larger tax deduction. 

Isaac Bradley, director of financial planning at Homrich Berg, told The Wall Street Journal that although it can be tempting to think that Congress is likely to extend many or all of these cuts, it is advisable to act now. 

‘If you don’t use up all of your exemptions, you lose them,’ he said. 


Income taxes 

Americans approaching retirement should consider converting a portion of their retirement savings into a Roth IRA. 

Estate taxes

Creating a trust is one way to transfer assets that could be subject to federal estate taxes after the end of 2025. 


Take advantage of a special break for ‘529’ education-savings plans.

Charitable giving 

If you are considering making a significant cash donation to a public charity, do so now to receive a larger tax deduction. 

Content source – www.soundhealthandlastingwealth.com

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