Provided by Kenji Callahan, Associate Wealth Manager at AEGIS Financial

 

An essential aspect of a financial plan is effective tax planning. The Tax Cuts and Jobs Act (TCJA) was implemented in 2017. The TCJA changed the standard deduction, tax brackets, tax credits, and other personal and business tax provisions. We should all be aware that the TCJA expires on December 31, 2025, when the tax code will return to its previous state.

 

Tax Brackets

One aspect you should be prepared for is that the tax brackets for all filers will revert to pre-TCJA brackets. Below is a comparison of what you can expect if you file as Married Filing Jointly or as a Single Filer. The taxable income brackets will likely increase with inflation adjustments.

 

Married Filing Jointly
Taxable Income (2024) Marginal Tax Rates 2024 Marginal Tax Rates Pre and Post TCJA
$0 to $23,200 10% 10%
$23,201 to $94,300 12% 15%
$94,301 to $180,000 22% 25%
$180,001 to $201,050 22% 28%
$201,051 to $274,400 24% 28%
$274,401 to $383,900 24% 33%
$383,901 to $487,450 32% 33%
$487,451 to $490,000 35% 33%
$490,001 to $553,600 35% 35%
$553,601 to $731,200 35% 39.6%
$731,201 and more 37% 39.6%

 

Single Filer
Taxable Income (2024) Marginal Tax Rates 2024 Marginal Tax Rates Pre and Post TCJA
$0 to $11,600 10% 10%
$11,601 to $47,150 12% 15%
$47,151 to $100,525 22% 25%
$100,526 to $108,000 24% 25%
$108,001 to $191,950 24% 28%
$191,951 to $225,400 32% 28%
$225,401 to $243,725 32% 33%
$243,725 to $490,000 35% 33%
$490,001 to $492,000 35% 35%
$492,001 to $609,350 35% 39.6%
$609,351 and more 37% 39.6%

 

Standard Deductions

The second aspect to be aware of is that the standard deduction will also be reverting. In 2017, the TCJA had nearly doubled the standard deduction from $6,500 per person to $12,000 for single filers, $13,000 to $24,000 for joint filers, and $9,550 to $18,000 for those filing as head of household. In 2026, the current standard deduction for each filing status will revert to an inflation-adjusted pre/post-TCJA amount. The exact amount of the deduction for 2026 is not known yet, but without any changes to the expected sunsetting, it will decrease.

 

Estate and Gift Tax Exemptions

Estate and gift tax limits are the third aspect that affects families and individuals with higher net worth. Like the standard deduction and tax bracket changes, the TCJA adjustment to the Estate exclusion amount was advantageous for Americans. Pre-TCJA, the exclusion amount in 2017 was $5,490,000. This increased to $11,180,000 in 2018, and now, in 2024, it sits at $13,610,000. This exclusion amount will continue to be indexed for inflation but will be sunset to a decreased amount in 2026.

 

Planning Ahead

We cannot change the TCJA sunsetting, but we can help you take advantage of it while it is still here. Options to consider are delaying deductible expenses to take advantage of the higher standard deduction, completing Roth contributions or conversions, and harvesting capital gains. Delaying certain itemized deductions into one year is a tax strategy known as bunching.

 

If you would like any help with these areas or potential strategies or have any questions or concerns, please contact us here at AEGIS Financial. We are always happy to help.

 

 

 

References and information provided by:

  • https://www.irs.gov/newsroom/estate-and-gift-tax-faqs
  • https://taxfoundation.org/data/all/federal/2017-tax-brackets/
  • https://www.irs.gov/newsroom/irs-provides-tax-inflation-adjustments-for-tax-year-2024#:~:text=Marginal%20rates%3A%20For%20tax%20year,for%20married%20couples%20filing%20jointly).&text=The%20lowest%20rate%20is%2010,for%20married%20couples%20filing%20jointly).
  • https://www.nerdwallet.com/article/taxes/federal-income-tax-brackets
  • https://www.taxpolicycenter.org/briefing-book/how-did-tcja-change-standard-deduction-and-itemized-deductions#:~:text=The%20Tax%20Cuts%20and%20Jobs%20Act%20(TCJA)%20increased%20the%20standard,are%20indexed%20annually%20for%20inflation.
  • https://www.irs.gov/newsroom/final-regulations-confirm-making-large-gifts-now-wont-harm-estates-after-2025