Here are a few of the expected changes to consider:
- Income tax brackets are scheduled to return to pre-TCJA levels (e.g., the top tax bracket increasing from 37% to 39.6%). Wealthier taxpayers can expect a measurable increase in their effective tax rate.
- As of 2024, individuals can currently transfer up to $13.61 million and a married couple can transfer a total of up to $27.22 million (either during your life or as part of your estate) without triggering federal gift or estate taxes and nearly doubling the standard deduction amount from $13,000 to $24,000. Without legislative action, this amount will be cut almost in half for the 2026 tax year.
Barring any action on the part of Congress, these changes will expire on December 31, 2025 and will revert to pre-TCJA levels. This means it’s a good time to put a tax plan in place now — and make the most of this favorable tax climate before next year’s changes.
Estate and Gift Taxes
If you are a family with taxable estates over $7 million ($14 million for a married couple) you may want to explore these strategies:
1. Annual cash gifts — Gift up to $18,000/year ($36,000 for married couples filing jointly) without triggering gift or estate taxes. For large extended families, it’s a simple way to move considerable wealth out of your estate and into the hands of the next generation.
2. Accelerated 529 plan gifts — Accelerate five years of gifts to educational accounts for any child, grandchild, other relative, or friend–up to $90,000 in a single year ($180,000 for a married couple). By doing so, you can help fund future qualified educational expenses (where funds grow tax-free) while reducing your taxable estate.
3. Dynasty trusts — Haven’t used all your lifetime gift tax exemption? Gift those assets to a dynasty trust to help provide for future generations. Any income and appreciation the trust assets generate can be transferred without estate or gift taxes. And by funding the trust with a life insurance policy, you can increase its value even further.
4. Irrevocable life insurance trusts (ILITs) — Purchase a survivorship policy owned by an ILIT to transfer wealth outside your taxable estate. The death benefit paid out to your beneficiaries is income that’s also considered tax-free.
Income and Capital Gains Taxes
Explore these strategies to take advantage of the current lower brackets:
5. Roth IRA conversions — Roth IRAs have two clear advantages over traditional IRAs (e.g., no required minimum distributions and all growth and distributions are tax-free). However, converting all or part of your traditional IRA to a Roth will require you to pay income taxes upfront on the amount you convert. By doing so before 2026, however, you can take advantage of current lower tax brackets.
6. Capital gains harvesting — If you anticipate higher capital gains tax rates, consider selling some highly appreciated securities prior to the TCJA expiration. The taxes due from a sale now may be lower than in the future. And since wash sale rules only apply to harvesting losses (not gains), you could turn around and buy the same securities at a stepped-up cost basis to help reduce future recognized gains without disrupting your portfolio allocations.
Get Your Plan in Place Now
While none of us know what the future holds, the more time you have to prepare, the more options you’ll have available. Your Janney Financial Advisor (working together with your tax professional) can help build a plan to more effectively manage both your current and future tax liability.
Working With Janney
Depending on your financial needs and personal preferences, as well as the fees and costs associated with those services, you may opt to engage in a brokerage relationship, an advisory relationship, or a combination of both. Each time you open an account, we will make recommendations on which type of relationship is in your best interest based on the information you provide when you complete or update your client profile.
If you engage in a brokerage relationship, you will buy and sell securities on a transaction basis and pay a commission for these services. Our recommendations for the purchase and sale of securities will be based on what is in your best interest and reflect reasonably available alternatives at that time.
If you engage in an advisory relationship, you will pay an asset-based fee, which encompasses, among other things, a defined investment strategy, ongoing monitoring, and performance reporting. Your Financial Advisor will serve in a fiduciary capacity for your advisory relationships.
For more information about Janney, please see Janney’s Relationship Summary (Form CRS) on www.janney.com/crs which details all material facts about the scope and terms of our relationship with you and any potential conflicts of interest.
By establishing a relationship with us, we can build a tailored financial plan and make recommendations about solutions that are aligned with your best interest and unique needs, goals, and preferences.
Contact us today to discuss how we can put a plan in place designed to help you reach your financial goals.
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