Tax Cuts and Jobs Act Expiration: Impact on Personal Taxes - Adviser Investments
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Tax Cuts and Jobs Act Expiration: Impact on Personal Taxes

Manager of Financial Planning Andrew Busa looks down the road to help you prepare for potential tax implications when the Tax Cuts and Jobs Act of 2017 (TCJA) sunsets at the end of 2025.

Key tax planning topics to consider when discussing the expiration of the TCJA with your financial adviser include:

  • Estate planning implications
  • A lower federal gift and estate tax exemption (the unified credit)
  • A potential increase in personal income tax rates to the previous marginal tax bracket for high earners
  • The Alternative Minimum Tax (AMT) may affect significantly more taxpayers than today. 

Who doesn’t love a good sunset? I know I do…except when it entails higher taxes.

When the clock strikes midnight on Dec. 31, 2025, the sun will set on the Tax Cuts and Jobs Act of 2017 (TCJA). Unless Congress acts in advance to preserve some or all of it, tax and estate planning implications will reverberate far and wide.

The good news? We have more than two years to work with you to make sure your financial plans are in order—and we will.

Here are some highlights of what will change if the TCJA is allowed to expire:

Unified tax credit cut in half. Thanks to TCJA, the federal gift and estate tax exemption is a whopping $12.92 million. Because of portability, that number doubles for married couples. You will also see this number referred to as the “unified credit,” which is the dollar amount one can gift and/or pass on to the next generation before gift tax or estate tax is due. If TCJA sunsets, the figure will revert to $5.49 million, adjusted for inflation.

Personal income tax rates revert. The TCJA decreased personal tax rates across the board. Those rates will revert to their prior levels at the end of 2025. For high-income earners, that means a return to the 39.6% marginal rate from the current 37%.

Alternative minimum tax (AMT) gets teeth. The AMT is intended to close the loopholes that allow high-net-worth individuals to reduce or eliminate their taxes. In 2018, the number of U.S. taxpayers impacted by the AMT was 200,000—but that number will almost certainly rise exponentially in 2025 if the TCJA expires as scheduled and the AMT exemption falls dramatically.

All of this adds up to an appreciable increase in taxes due for certain taxpayers should the TCJA fade away. Stay tuned for a part 2 to this section in the coming weeks, plus our advice on what you can do—including accelerating Roth IRA conversions, considering a spousal lifetime access trust and much more.

In the meantime, contact your wealth adviser team with questions and concerns. We are ready to help.

Are there any financial planning or tax topics you’d like us to address in a future edition of the weekly email? Please let your wealth management team know or write to us at info@adviserinvestments.com. We’d love to hear your suggestions.

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Video Transcript

Are you ready for the sunset?

Hi, I’m Andrew Busa, Manager of Financial Planning with Today’s Adviser Takeaway.

So on December 31st, 2025 at midnight, the sun will set on the Tax Cuts and Jobs Act of 2017, or TCJA, and when it does tax and estate planning implications will reverberate far and wide. Now the good news is we have over two years to get your financial plan in order for that, and we will. But here’s what’s going to be affected.

If and when Tax Cuts and Jobs Act does sunset at the end of 2025. The first is the unified credit will get cut half. Now, thanks to the current tax regime, the federal gift and estate tax exemption is over $12 million, and that number doubles for a married couple. Now you’ll see this number also referred to as the unified credit. That’s the dollar amount that one can gift or pass to the next generation before a gift or estate tax is due. Again at the end of 2025, that number essentially gets cut in half. That’s a big one.

Number two, is that personal income tax rates revert. So in 2017, personal tax rates decreased across the board, and those rates will revert to their prior selves at the end of 2025. For high income earners, that means a return to the 39.6% marginal tax bracket and increase from the current 37%.

And then finally, Alternative Minimum Tax, or AMT, gets teeth. Now this is intended to make sure that high income earners to pay their fair share of taxes, but the number of taxpayers actually affected by AMT in recent years has been small. That’s because of what the Tax Cuts and Jobs Act did there. But when this act expires and sunsets, that number will skyrocket, those affected by AMT, so something to be aware of.

So all of this adds up to real money and taxes due for some if the TCJA does sunset as it’s scheduled to do so stay tuned for part two, a video next week, when we’ll talk about some solutions and planning ideas that you can think about implementing to make sure that you mitigate your exposure to estate and income taxes.

In the meantime, reach out to your wealth adviser team with questions and concerns. We are absolutely happy to help. Thanks for watching.

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Additional Tax Cuts and Jobs Act of 2017 Resources

For informational purposes only; not a recommendation to buy, hold or sell any investment product. Past performance is not an indication of future returns. Speak with a financial advisor before taking specific action. Tax, legal and insurance information contained herein is general in nature, is provided for informational purposes only and should not be construed as legal or tax advice. Personalized tax advice and tax return preparation is available through a separate, written engagement agreement with Adviser Investments Tax Solutions. Always consult a professional regarding your specific situation.