Tax Planning with an Eye on Upcoming Income and Estate Tax Changes

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One of the reasons we urge our clients and others to make an estate plan is that often, we can’t know what the future holds. It’s best to be prepared with good planning so that you will be ready for whatever comes to pass.

But sometimes, you can predict the future—not by magic, but through scheduled changes to the tax law. It’s important to take advantage of this knowledge so that you, and your assets, will be prepared. By taking note of upcoming tax changes, you can minimize both your income tax burden and the potential tax burden on your estate—and your heirs.

What Are the Upcoming Tax Law Changes?

Tax law often changes, but few changes were as sweeping as the Tax Cuts and Jobs Act (TCJA) of 2017, which had a profound effect on both individual income tax and estate and gift taxation. We’ve been living with those changes for over five years now, and whether you liked them or not, you may have forgotten that many of the provisions of the TCJA are due to “sunset” on December 31, 2025.

In other words, many aspects of the tax law will revert to what they were in 2017. Let’s take a look at how the upcoming tax law changes might affect individuals and estates.

Tax Law Changes for Individuals

Individual Income Tax Rates and Brackets

One of the most talked-about changes brought about by the TCJA was the reduction in individual tax rates. Under the TCJA, the top tax rate dropped to 37% from 39.5%; after December 31, 2025, the rates will revert to their pre-2017 levels.

Tax brackets will shift as well; a married couple with income of $160,000 is currently in the third-lowest tax bracket, paying a marginal rate of 22%. After TCJA’s sunset, they will be in the fourth-lowest bracket, paying a marginal rate of 28%.

Standard Deduction

The TCJA nearly doubled the standard deduction for all income tax filing status; the deduction rose to $12,000 for single filers, and $24,000 for married couples filing jointly. The increase meant that many people who previously chose to itemize their deductions claimed the standard deduction instead, getting the same or greater benefit for less work. The standard deduction is set to revert to its pre-TCJA level.

It might once again be beneficial for taxpayers to itemize their deductions, if the total will exceed the lowered amount of the standard deduction. Many itemized deductions temporarily eliminated by the TCJA, like those for state and local taxes (SALT) and unreimbursed employee expenses, will again be allowed.

Child Tax Credit

The child tax credit doubled from $1,000 to $2,000 per qualifying child under the TCJA. In 2026, the credit amount will revert to its pre-TCJA level.

Personal Exemptions

Prior to the TCJA, which suspended personal exemptions, the personal exemption for each taxpayer and qualified dependent was $2,000. After the sunset of the law’s provision regarding personal exemptions, taxpayers can again claim these amounts, adjusted for inflation.

This is not a comprehensive list of the individual tax law changes expected to take place after the sunset of some of the TCJA’s provisions, and Congress could take action before 2026 to extend or make permanent some of the provisions that are currently set to expire.

Estate Tax Law Changes Under the TCJA

When it took effect, the TCJA nearly doubled the amount of the estate and gift tax exclusion, which went from $5,490,000 per person in 2017 to $11,180,000. The exclusion amount is adjusted annually for inflation; in 2024 the amount is $13.61 million per individual, or $27.22 million for a married couple.

That exclusion amount will revert to its 2017 level after the TCJA’s provisions sunset, adjusted for inflation. The vast majority of America estates will still not find themselves subject to estate tax, even with the drastically lowered exclusion.

However, there are also many estates currently below the exclusion amount which might find themselves exposed to estate tax liability when the exclusion drops again. As with the income tax provisions of the TCJA, Congress could take action before “sunset” to extend the increase in the estate and gift tax exclusion or make it permanent. However, no such legislation appears likely at this time

Therefore, it makes sense for taxpayers to act now to mitigate any negative effect the sunset of TCJA provisions might have on their estate tax liability. Fortunately, there are many options for doing so, depending on each taxpayer’s unique circumstances.

For example, certain lifetime gifting strategies can be used to shield against eventual estate tax liability. Various types of irrevocable trusts, such as spousal lifetime access trusts (SLATs) and grantor-retained annuity trusts (GRATs), can also be used to reduce the amount of one’s taxable estate. However, it is important to remember that the tax law is a machine with many moving parts; you need to work with an estate planner who is aware of the impact one targeted action could have on your overall financial well-being.

Seek Experienced Guidance for High Net Worth Estate Planning

The tax law changes scheduled to take effect in 2026 may seem far away right now, but they will be here before you know it. Having a plan in place before then may save money—and heartache—later.

To learn more about estate planning and tax planning in light of the upcoming tax law changes, speak with an attorney who is experienced in dealing with large and complex estates. The experienced estate planning attorneys at Barron, Rosenberg, Mayoras & Mayoras work with high-net-worth individuals who want to preserve their wealth for their family. Schedule a consultation today by calling (248)213-9514 in Michigan or (941) 222-2199 in Florida to learn how we can assist you. You can also use our simple online contact form.