Tax uncertainty requires preparedness

You will soon have to confront a higher tax bill if Congress doesn’t extend many credits, deductions, and lower tax rates that are set to expire at the end of this year.

Here’s who should be considering ongoing tax planning sessions as this uncertainty plays out in Congress and the Executive office:

•Your income will increase in 2025. Maybe you are looking to move jobs or obtain a promotion. This should trigger a planning session as marginal rates currently max out at 37 percent at a fairly high income, but that could all change beginning in 2026.

•You were an itemized deductions taxpayer. A number of taxpayers may begin itemizing deductions again in 2026 if the rules expire as they are currently scheduled to. This means planning your expenses in light of this impending roll back of rules will take some thought. This is especially true if you have high state income and real estate taxes.

•You have a large estate. The current estate exemption ($13.99 million in 2025 for single taxpayers, $27.98 million for married) drops back to $5 million in 2026. While this reset amount will be adjusted for inflation going forward, gifting money or other assets can help reduce the size of your taxable estate while taking advantage of this historically high exemption amount.

•You have investments. Review your investments to be as tax efficient as possible. Municipal bonds and tax-deferred plans like 401(k)s and IRAs may also become more attractive after 2025. Also consider tax-loss harvesting strategies to offset future gains. Another idea: if your tax rate will be lower in 2025 compared to 2026, consider selling appreciated assets in 2025 at a lower tax rate, then immediately purchase the asset again. Remember that wash sales rules only apply to losses, not gains!

•You have pass-through business income. If you are a small business owner, assess how the loss of the Qualified Business Income deduction will affect your tax liability. Review whether you should change your entity type to minimize the loss of this deduction.

One of my primary objectives is to help you achieve your financial goals through a holistic approach that is tax-efficient in my wealth management and tax resolution practice. For more information, visit www.fredtfoxiii.com.