Most people don’t like change. Or maybe they don’t like things being out of their control. If that’s you, then now is a good time to start preparing for the expiration of our current income and inheritance tax laws. It will definitely be a change, and it will definitely be out of your control.

The Tax Cuts & Jobs Act of 2017 (TCJA) expires on December 31, 2025. This will affect everything related to how much taxes you pay and how much you can pass on tax-free to your heirs. This assumes there will be no significant tax reforms between now and the end of next year.

It’s important to understand that in this situation, taxes will go up and the amount you can exempt from estate taxes will go down. That’s right – not good for you. But why worry about it now? Because you only have a few months left this tax year to make any changes you want to make. If new tax laws are indeed passed in 2025, you may wish you had taken advantage of the current lower tax rates this year. Unless the new tax law repeals the TCJA sunset rule, you only have one year left to make adjustments to your taxable income and estate.

I would advise anyone who is happy with their current tax and estate situation to think again. Even if you are currently in the highest tax bracket, it is likely to go higher, so plan well this year and next year to pay as much as you can now to avoid having to pay more in the future.

That means intentionally shifting more taxable income into this year and next year. You can do this by converting your 401(k) contribution from tax-free to a Roth contribution if your employer offers a Roth option. You can also consider a Roth conversion and realize capital gains on highly valued stocks. You can complete and account for projects if you’re self-employed. The problem is that many of these strategies take a while to plan and implement, but if you start now, they could be spread out over two tax years.

Because it’s an election year, it’s hard to predict what will actually happen next year. Starting to plan for 2024 now will give you the most control, since it’s unlikely that much new legislation will be passed in the next four months. We also don’t know how 2017 tax brackets will adjust for inflation, but Michael Kitces, CFP®, tax planner, has created a comparison that may be helpful for planning. For example, for those with a taxable household income of $94,300, the bracket could increase from 12 percent to 25 percent. A household income of $189,850 could increase your bracket from 22 percent to 28 percent. Currently, the highest bracket of 37 percent applies to incomes above $731,200. After the law is rolled back to 2017 levels, adjusted for inflation, the highest tax rate for married couples filing jointly will be 39.6% for incomes over $583,750.¹ These are just a few of the significant changes that could remain in effect for many years to come and are well worth planning for.

Estate planning is also an important opportunity to prepare for. You may want to transfer some of your wealth now to avoid your heirs having to pay 45 percent or more on assets above the exemption limit, which is expected to fall back to $5 million when adjusted for inflation.²

There are gifting options that allow you to shrink your assets and leave them to your heirs rather than leaving them to the government. You may also consider taking advantage of your lifetime tax exemption now by putting the majority of your assets into a gift fund. Work with your professional advisor to figure out which plan is right for you.

Patricia Kummer is Managing Director of Mariner Wealth Advisors.

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