Act Now: What to Do Before The Sunset of Current Tax Cuts
With the 2026 Tax Sunset looming, it’s crucial to act now to safeguard your finances. Many provisions of the Tax Cuts and Jobs Act of 2017 are set to expire, leading to higher tax rates, lower deductions, and significant changes in estate planning. Here’s what you need to know and the steps you should take before these tax cuts disappear.
Key Changes You Need to Prepare For:
1. Increased Tax Rates
In 2026, individual tax rates will increase across all brackets, with the top rate rising from 37% to 39.6%. This means higher taxes for most individuals.
2. Reduced Standard Deduction
The standard deduction will be nearly halved. For single filers, it will drop from $14,600 to about $6,350, and for married couples filing jointly, it will decrease from $29,200 to $12,700.
3. Return of Personal Exemption
The personal exemption, eliminated under the TCJA, will return, allowing deductions of around $4,050 per person, adjusted for inflation.
4. Lower Estate Tax Exemption
The estate tax exemption will significantly decrease from $13.61 million to approximately $6.5 million, increasing the number of estates subject to federal estate taxes.
5. Expiration of the 199A Deduction
The 20% Qualified Business Income (QBI) deduction for pass-through entities will expire, impacting many small business owners by increasing their taxable income.
Essential Steps to Take Now:
1. Utilize Cash-value financial tools for Estate Planning
Consider Whole Life (WL) and Indexed Universal Life (IUL) insurance policies, which accumulate cash value over time. These policies can provide tax-free loans to supplement retirement income and help cover estate taxes.
2. Establish an Irrevocable Life Insurance Trust (ILIT)
An ILIT can keep life insurance proceeds out of your taxable estate, providing necessary liquidity to pay estate taxes without depleting your assets.
3. Create a Bypass Trust
For married couples, a bypass trust can help maximize estate tax exemptions by sheltering additional assets from taxation at the death of the second spouse.
4. Take Advantage of Annual Gifting
Maximize the current high gift tax exclusion by making annual gifts to reduce the size of your estate. This can be a tax-efficient way to transfer wealth to your heirs.
5. Plan Charitable Contributions Wisely
With the charitable deduction limit dropping from 60% to 50% for cash contributions, plan your charitable giving to maximize tax benefits while supporting causes you care about.
6. Implement Tax-Efficient Growth Strategies
Consider tax-advantaged accounts such as Roth IRAs, which offer tax-free growth and withdrawals. Utilize tax-loss harvesting to offset gains with losses.
Act Now to Secure Your Financial Future
The changes brought by the 2026 Tax Sunset will have a profound impact on your financial situation. By taking proactive steps now, you can mitigate these impacts and protect your wealth. Contact me today to schedule a comprehensive financial review and explore the best strategies for your unique situation.
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