A Republican majority in Washington may bring an extension of key provisions of the Tax Cuts and Jobs Act, but further tax cuts may be difficult in light of fiscal concerns such as a burgeoning budget and shrinking revenue.

Due to significant financial impact should certain provisions “sunset,” we are urging clients to have a conversation with their Financial Advisor regarding estate planning in the year ahead as well as for the future. A “wait-and-see” approach runs a significant wealth-preservation risk: loss of the $14 million additional exemption for married couples or $7 million for individuals that is available today.

To mitigate that risk, and to avoid any rushed planning towards the end of 2025, clients looking for flexibility as the deadline approaches may wish to do their planning now and ready any necessary documents for transfers of property towards the end of 2025, when the fate of the TCJA may be more apparent.

The Internal Revenue Service has issued an “anti-claw-back” regulation that protects taxpayers from being penalized for using their exemption during their lifetime. Under this regulation, any exemption used during life will be viewed as final. Thus, if the exemption were to decrease in subsequent years, the IRS would not impose a tax on the prior gifts, nor claw assets back into the taxpayer’s estate.

Current exemption levels for estate, gift, and GST taxes may remain at $14 million for each spouse and double that per couple, the question is, how will the government pay for this? Elimination of green energy tax credits? Tariffs on imported goods? Most likely a “claw back” of recently committed IRS funds. Any choice will have a ripple effect and change where you might look to invest as well as the dollars in your pocketbook. FYI – the corporate income tax rate was reduced by the TCJA, from 29% to 21%, and is a permanent change not subject to sunset.

Ideas floated on the campaign trail included elimination of tax on Social Security, tipped wages, and a reduction of the corporate tax to 15%. Again, how would the government make up that revenue, when already suffering from an increase in debt that is now 124% of GDP? Taxes may actually have to be increased to curb annual deficits and growth of the national debt.

Wealth planning strategies we suggest:

• Annual gifting as part of an annual plan of “lifetime giving.” When gifting an asset with appreciation potential to an individual or trust, like stock or investment real estate, you remove the appreciation and income from your tax base for the year of the gift, as well as future years.
• Tax loss harvesting to offset gains that would be taxed at current rates, (or potentially higher ones).
• Postpone sales of capital assets to later years that would be taxed at potentially lower capital gain tax rates.
• Strategically manage income tax brackets overtime by increasing portions of your income while tax rates are still low,
  • Review deferred compensation elections,
  • Consider partial or total conversions of IRAs to Roth IRAs.
• Look for more tax diversification for future income sources, and
• Accelerate the purchase of imports for personal/business use to avoid higher prices due to tariffs.

Reach Out to Us: The current estate and gift tax exemption amount offers a unique window of opportunity for estate planning, but it may sunset, and then a significant portion of it may be lost. The first step is to contact your TFG Financial Advisors’ professional as soon as possible to discuss your existing estate plan and unique circumstances. At the very least, be sure revocable and irrevocable trust documents account for estate taxes, and the future growth and appreciation of assets. Those with larger estates may wish to take advantage of advanced planning strategies that remove assets from the taxable estate, or deploy discounting strategies to reduce the taxable value of their estate. When giving annual tax free gifts, be sure to consider the beneficiary’s tax liability; the benefit to you comes at the cost of the recipient receiving the asset with your cost basis.

TFG Financial Advisors, LLC, is registered as an investment adviser with the SEC. Registration is not an endorsement of the firm by securities regulators and does not mean the adviser has achieved a specific level of skill or ability. The firm is not engaged in the practice of law or accounting. All expressions of opinion reflect the judgment of the authors on the date of publication and may change in response to market conditions. You should consult with a professional advisor before implementing any strategies discussed. Content should not be viewed as an offer to buy or sell any of the securities mentioned or as legal or tax advice. You should always consult an attorney or tax professional regarding your specific legal or tax situation. Tax rules and regulations are subject to change at any time. All investment strategies have the potential for profit or loss.