Josh Strange is the Founder and President of Good Life Financial Advisors of NOVA. The Tax Cuts & Jobs Act (TCJA) provisions may expire at the end of next year due to ongoing political dysfunction at the federal level. With tax policy being able to change anytime the White House changes hands, it is important for individuals to understand how the tax codes could potentially change, especially since 2024 is a presidential election year.
Currently, there are seven marginal tax rates ranging from 10% to 37%. If the TCJA were to expire, these rates would revert to pre-TCJA levels, resulting in higher taxes for individuals. Even a few percentage point increase could result in thousands of dollars in additional tax liability each year. For example, a single person making $180,000 a year could see their marginal rate increase from 24% to 28%, resulting in over $7,000 in additional taxes annually.
The TCJA nearly doubled the standard deduction amounts in 2018, raising them to $12,000 for individuals and $24,000 for married couples filing jointly. If the TCJA were to expire, the standard deduction amounts would revert to pre-TCJA levels and then be adjusted for inflation based on the consumer price index for all urban consumers. This could impact the taxable income of individuals who do not itemize their deductions.
Under the TCJA, individuals can only deduct interest payments on mortgage debt used to secure the property. If the TCJA were to expire, the cap on deductible mortgage interest payments would increase from $750,000 to $1 million, and taxpayers would be able to deduct interest on the first $100,000 of home equity debt, regardless of when the debt was incurred.
The TCJA imposes estate and gift taxes of 40% on wealth transfers after a set exclusion amount. If the TCJA were to expire, the estate and gift tax exclusion amount would drop from $13.61 million to $5 million for each person who dies, potentially subjecting high net worth families to significant estate and gift taxes. Planning for changes to estate and gift tax exclusions may be essential for some families.
It is important for individuals to discuss potential tax policy changes with their financial professionals to prepare for any eventuality. Working with advisors, accountants, and attorneys to create coordinated financial plans can help mitigate the impacts of any changes to tax codes or policies. Since the future of the TCJA is uncertain, seeking advice from licensed professionals is crucial to navigating potential tax law changes and ensuring financial stability in the face of political dysfunction.
