The Tax Cuts and Jobs Act (TCJA) is facing an uncertain future, raising questions about its potential expiration and the impact on taxpayers. Experts advise individuals to prepare for potential tax rate increases by exploring tax-saving strategies like Roth conversions and understanding the implications of the standard deduction versus itemized deductions.
February marks the beginning of the 2025 tax season, a time that can be stressful even without the uncertainty surrounding potential changes to tax policy. The Tax Cuts and Jobs Act ( TCJA ), enacted in 2017, is up for renewal, and its fate remains unclear. While a Republican-controlled Congress and a potential reelection of Donald Trump might suggest its continuation, experts warn against assuming its permanence.
Ashley Weeks, a wealth strategist at TD Wealth, cautions that the TCJA's future hinges on a significant philosophical divide within the Republican party regarding deficit reduction versus the benefits of extended tax cuts. Weeks emphasizes that there's no guarantee the TCJA will be renewed in its entirety, urging taxpayers to plan their finances based on the current tax rules. In light of this uncertainty, Weeks recommends two key tax-saving strategies to consider: Roth conversions and a Roth conversion ladder. If you have a substantial amount in a pre-tax retirement account, a Roth conversion involves transferring money into a Roth IRA, where future growth will be tax-free. While this incurs immediate taxation on the converted amount, it can be advantageous if you anticipate a higher tax bracket in the future. Another benefit of Roth conversions is the elimination of required minimum distributions (RMDs), which begin at age 73. A Roth conversion ladder involves gradually converting smaller amounts from your traditional IRA or 401(k) over several years, mitigating the impact on your tax bracket.Weeks also advises taxpayers to familiarize themselves with the standard deduction versus itemized deductions. The TCJA significantly increased the standard deduction, leading to a decline in the number of taxpayers itemizing. However, if the TCJA isn't extended, the standard deduction will revert to a lower amount, potentially encouraging more taxpayers to itemize. Weeks suggests delaying large expenses until 2026, if the TCJA isn't renewed, to maximize the tax benefits of itemized deductions, particularly for charitable donations. Regardless of the TCJA's fate, Weeks stresses the importance of organizing your financial documents to ensure a smooth tax filing process. He recommends checking last year's tax return for completeness and verifying that all necessary documentation, such as 1099s, are received promptly from financial institutions.
TAXES TCJA Tax Cuts And Jobs Act Roth Conversion Retirement Accounts Standard Deduction Itemized Deductions Tax Planning Donald Trump
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