Do You Like a Great Sunset? Chances Are, You’re Not Going to Like This One.
One of the services that we offer to our clients is a financial planning analysis of their tax returns. In my written reports I remind my clients that the Tax Cuts and Jobs Act of 2017 (which took effect in 2018) brought lower tax rates and a higher standard deduction to all of us, as well as numerous other provisions having significant positive impacts. With the complication of our tax laws and changes from year to year that affect us on an individual basis, many people simply do not understand or have taken the time to compare their current tax situation to their pre-TCJA status.
Many of the provisions of the TCJA are scheduled to “sunset”, meaning they will go back to their pre-TCJA rates at the end of 2025. Take a look at your 2023 return. What was your taxable income? What was the marginal rate? What was your standard deduction? Take a look at how that compares to what your 2026 tax return would look like under similar circumstances. For one couple’s recent analysis, we found that in 2023, they were in the 22% marginal federal tax bracket. Their same income would put them in the 25% bracket, with the sunset. Additionally, the standard deduction for married couples filing joint in 2023 was $27,700. Under the sunset, it would revert back to $12,700, indexed for inflation. That alone subjects an additional approximately $15,000 of their income to taxation. Furthermore, as a small business owner, the wife of the couple qualified for $21,732 of Qualified Business Deductions. The QBI is also scheduled to disappear. Added to the standard deduction, that is an additional approximately $36,732 of taxable income with the TCJA sunset, which then bumps them into the 28% tax bracket.
In other analyses for single clients over age 65, we see that their 2023 standard deduction was $15,700. With the sunset, that standard deduction reverts back to $7,600, indexed for inflation. Taxpayers who are subject to Required Minimum Distributions from their retirement accounts often feel the hit hard, as they have little control over their taxable income.
Nearly every analysis that we’ve done shows that we’ll all be paying more in taxes with the sunset.
The examples above are just a few of the provisions that are scheduled to sunset: there are more. The federal government, meaning the presidential administration and congress make these decisions, directly impacting your taxes. We all like a good sunset, but if the TCJA sunsets, chances are, we are not going to like this one.
LouAnn Schulfer of Schulfer & Associates, LLC Wealth Management can be reached at (715) 343-9600 or louann.schulfer@lpl.com TheWealthInformationLady.com SchulferAndAssociates.com , or louann.biz
Securities and advisory services offered through LPL Financial, a Registered Investment Advisor. Member FINRA/SIPC.
This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.
