Approaching the 2026 Tax Law Sunset: Key Strategies to Protect Your Wealth
With the impending 2026 tax law changes–where critical tax exemptions under the Tax Cuts and Jobs Act (TCJA) of 2017 are set to expire at the end of 2025 – it’s important to know how these changes may affect your wealth and financial future. Though this change is over a year and a half away, it's crucial to start preparing now, particularly in estate and income tax planning. At Northstar, our commitment is to guide you through these changes, ensuring strategies are in place to protect and potentially enhance your financial legacy.
The TCJA sunset is set to reshape the tax code, significantly affecting those with considerable assets. Anticipated adjustments include rising income tax rates, shrinking standard deductions, and resetting estate tax exemptions to pre-2017 levels. These upcoming changes call for an integrated approach to estate and income tax planning, ensuring you're poised to optimize your financial strategy.
Income Tax Shifts on the Horizon
The countdown to 2026 signals a pivotal shift, with many taxpayers poised to enter higher tax brackets. While forecasting exact future brackets is challenging due to unknown inflation rates, we can strategize effectively using current data. Now is the time to consider accelerating income recognition to capitalize on the remaining lower-tax years. Additionally, the upcoming reduction in standard deductions and child tax credits underscores the need for forward-thinking financial planning, allowing for strategic decisions that support your financial objectives.
Estate Planning Considerations
The approaching changes will notably reduce the lifetime estate and gift tax exemption, necessitating a strategic reassessment to protect your assets and optimize tax efficiency. This reduction, coupled with adjustments to the generation-skipping transfer tax (GST), underscores the importance of early estate planning. Developing targeted strategies now is crucial for those with assets across various ranges, ensuring a balance between gifting and asset retention to navigate potential future tax liabilities.
Strategic Actions to Consider
Now is the time to embrace proactive strategies that align with the expected tax environment:
● Income Recognition: Explore strategies to increase income recognition to capitalize on lower tax rates.
● Roth Conversions: Consider the benefits of Roth conversions to leverage tax-free growth in anticipation of higher future rates.
● Deduction Planning: Prepare for the return of previous deduction limits and strategize the timing of significant deductions.
● Charitable Contributions: Assess the timing of your charitable giving to maximize impact under the shifting tax landscape.
● Estate Gifting: Utilize current exemptions through strategic gifting to mitigate future estate tax impacts.
● Trust Strategies: Implement trusts and other planning tools to manage estate sizes effectively in response to exemption changes.
Proactive Collaboration
Partnering with financial, tax, and legal experts is essential to prepare for these tax adjustments. A comprehensive, collaborative strategy will address both estate and income tax changes, aligning with your personal and financial goals. This approach ensures a holistic view of your financial plan, from estate structuring to philanthropy, offering reassurance and a clear path forward in a changing tax environment.
Looking Ahead with Optimism
While future tax regulations may shift, proactive planning for the expected changes is critical. By refining your estate and income tax strategies now in collaboration with your CPA and estate attorney, you can strengthen your financial standing and navigate the upcoming transitions confidently, ensuring your goals and legacy are preserved.
At Northstar, we're here to help you understand and adapt to these changes. We offer tailored advice to align with your unique financial goals, helping you craft a plan that addresses current and future needs and secures a lasting legacy.
We invite you to explore how these tax changes might impact your financial strategy. At Northstar, your financial journey is our priority, and we're dedicated to guiding you to a secure and prosperous future. Schedule a call for a personalized consultation and take proactive steps towards preparing for the tax transitions on the horizon.
Written by Julie Fortin in collaboration with Lexicon Advisor Marketing
