In the extensive experience of James Bergeron, an attorney and advisor education specialist at Nuveen, the key to effective tax planning is to think ahead.
The end of 2023 is a particularly important moment to look ahead, Bergeron argues, as a number of major tax cuts affecting a wide swath of Americans are set to expire in 2026. He made this case during a recent webinar hosted by Nuveen, titled "Taxes: The calm before the storm?"
The main "storm" in reference is the sunsetting of key provisions of 2017's Tax Cuts and Jobs Act (TCJA), a signature piece of legislation passed by the Republican-controlled Congress during the early presidency of Donald Trump. Among a sweep of other changes, the law greatly increased the lifetime estate tax exemption for individuals and couples.
However, the expanded estate tax exemption provision, which pushed the lifetime exemption for a married couple to more than $26 million, is set to expire at the end of 2025. At that time, the limit will be cut essentially in half, barring what many see as unlikely congressional action in the interim.
According to Bergeron, this is a major tax planning consideration for advisors and their clients to grapple with in the next two years, but it's just one of several big-ticket tax considerations on the table now. The pressure is on for financial planners, he says, but so is the opportunity to deliver significant value in this area.
Beyond Estate Taxes
As Bergeron emphasized, various TCJA provisions are on track to expire at the end of 2025 — not just the historically generous estate tax exemption.
Also included in the expiring provisions are those that lowered individual income tax rates and those that expanded some tax brackets, Bergeron warned. So are key policies that increased the alternative minimum tax (AMT) exemption and certain exemption phase-out levels.
Other important provisions that are set to expire are the near-doubling of the standard deduction and the significant boost to the transfer tax exemption amount.
As a result of these changes, Bergeron said, tax liabilities for the vast majority of American taxpayers will likely rise as of Jan. 1, 2026. This fact, in turn, could have a significant impact on the established tax-mitigation strategies advisors and their clients have put in place since 2017.
Debt Ceiling Worries
As Bergeron pointed out, 2023 brought a two-year suspension of the debt ceiling, which caps the total amount of money the government is allowed to borrow. As such, legislators have until Jan. 1, 2025, to decide whether (and by how much) to raise the limit on federal borrowing.
"As that deadline approaches and the two main political parties look to negotiate a solution to the growing debt, we will likely hear calls for cuts in spending as well as for increases in revenues — i.e. taxes," Bergeron pointed out.
While it is not really possible to know today where tax rates could move in the future, Bergeron said there is a general consensus that rates are relatively low from a historical perspective.
