Do not let uncertainty over taxes lead to inaction.
If we wait for clarity in Washington to start any planning, we will never do anything.
Understand the possible changes coming.
BBB’s tax changes include extending the child tax credits, including high income S-Corporation owners’ income in the 3.8% net investment income tax, eliminating after tax Roth IRA conversions (backdoor Roths), and increasing the state and local tax deduction cap of $10,000. All of these provisions were one vote short of becoming law, and therefore it would not surprise me to see them come back in a revised BBB or another bill. There were many other tax increases that impact more people that did not make the BBB cut but did come out of committee and should not be dismissed. The ones that would affect our clients the most would be increasing the top tax bracket to 39.6%, increasing the top capital gains rate to 25%, cutting the estate tax exclusion of $12.06 million in half, and eliminating Grantor Trust benefits. They may have trouble becoming law, but it is out there as a possibility.
Be proactive.
Should these changes impact you, get out in front of them. For our clients that make after tax IRA contributions and covert them to Roth IRAs, I suggest this be done now instead of waiting until the end of the year in case the law changes mid-year. If you have a substantial net worth, are over the estate tax limit, and have been thinking about gifting or grantor trusts–well, what are you waiting for? You received a reprieve by the estate limit reduction getting scrapped, at least for now. But it could come up again. We know this law provision sunsets at the end of 2025, and estate exemptions will go down with no action. Learn from this “shot across the bow” and act if necessary.
