As we embark on the final few months of 2024, exploring year-end tax planning opportunities should be top of mind. This is especially true this year with a host of favorable tax provisions afforded by the Tax Cuts and Jobs Act (TCJA) set to expire on December 31, 2025, as well as proposed legislative changes that could upend the estate planning landscape. While it is unlikely for any new tax law to pass before the end of the year, many are saying that anything is fair game in 2025, depending on the outcome of the November elections.
Although not an exhaustive list, some of the TCJA-enacted income tax provisions that will sunset at the end of next year or phase out soon thereafter, barring any congressional action, are:
- the 20% pass-through income deduction;
- bonus depreciation;
- the reduced 37% maximum individual income tax rate;
- the increased standard deduction;
- the increased 60% limitation on cash donations to public charities;
- the $10,000 state and local tax deduction cap; and
- the increased child tax credit.
On the estate and gift tax fronts, the $13.61 million (or $27.22 million for a married couple) tax exemptions will practically be slashed in half at the end of 2025 if new legislation is not promulgated. Furthermore, a recent budget proposal, better known as the 2024 Greenbook, contains numerous provisions that would dramatically affect the taxation of trusts, gifts, and estates. Some of these proposed changes include:
- limiting the gift tax annual exclusion to $50,000 per donor and removing the present interest gift requirement;
- requiring certain trusts to disclose asset values and detailed trustee information;
- banning the ability to use defined value formula clauses for gifts of hard-to-value assets, such that subsequent valuation adjustments made by the IRS would result in taxable gifts and prevent the cost-neutral reallocation of excess value between transferor and transferees;
- effectively ending dynasty trusts;
- effectively ending grantor trusts;
- treating transfers of appreciated property by gift or at death as realization events;
- treating loans made by trusts to beneficiaries as taxable distributions; and
- eliminating valuation discounts for gifts of certain minority interests in closely held businesses.
If you have been snoozing on your estate plan, this window of opportunity may be closing, so take advantage of these favorable tax benefits while they last and before Congress pulls the plug, provided that it is proper for your state of financial affairs. As a matter of fact, there are many advisors who plan to turn down work well in advance of the 2025 tax cliff to avoid the flood of last-minute scramblers, so it would behoove you to act quickly. Also, you can rest assured that any gratuitous transfers made prior to a law change would not be reversed and individuals taking advantage of wealth transfer opportunities now will not be adversely impacted in the event the estate and gift tax exemptions are scaled back.
Given all that could change, now is the time to consult with your tax, legal and financial advisors to evaluate how tax reform may impact your tax situation and develop both primary and contingency plans and have them ready for execution at your disposal.
If you wish to learn more about any of these topics, please tune in to our webcast on December 4, 2024, where we will be taking a deeper dive into many of the aforementioned issues and share some tax-saving techniques to consider.
Author:
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David Yoo Senior Vice President, Director of Tax and Financial Planning First American Trust |
David brings over 25 years of tax experience servicing wealthy individuals and their closely held businesses, with a strong emphasis in the taxation of estates and trusts. As the Director of Tax and Financial Planning, he is responsible for overseeing the Tax Department and advising clients on their tax planning needs vis-à-vis income, estate, gift, and charitable matters. David is a licensed Certified Public Accountant in California and a Certified Financial Planner TM, and earned his Master of Business Taxation degree from University of Southern California and his undergraduate degree from University of California, Irvine.
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