26 tips on expiring Tax Cuts and Jobs Act provisions to review before 2026

November 7, 2023 9:00 AM

President Donald Trump and House Speaker Paul Ryan — President Donald Trump shakes hands with U.S. House Speaker Paul Ryan as Sens. Tim Scott and Mitch McConnell look on at a December 2017 event at the White House celebrating the passage of the Tax Cuts and Jobs Act. Many provisions are set to expire at the end of 2025.

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The Tax Cuts and Jobs Act is posing a $3.4 trillion question to financial advisors, tax professionals and their clients: Which expiring provisions will remain law after 2025?

That's the cost of extending every one of the sunsetting rules around estates, the higher standardized deduction, lower income brackets, qualified business income, a limitation on the deduction for state and local taxes and many other sections of the 2017 law for a full decade beyond their current cutoff at the end of 2025, according to a recent estimate by the nonpartisan, nonprofit Committee for a Responsible Federal Budget.

The uncertainty of the timeline presents another layer of challenges and opportunities from the legislation that one expert has described as "the tax professional, lawyer and financial advisor job security act."

As often happens in wealth management, a political issue facing the federal government is playing out at tax and advisory firms as a matter involving practice management and planning strategies for maximizing potential savings while avoiding risk. Financial Planning compiled the below list of 26 tips for review before 2026 after speaking with the following 10 professionals:

Garrett Watson, senior policy analyst and modeling manager for the Tax Foundation, another nonprofit, nonpartisan policy research organization
Liting Chuang, a certified public accountant who's the director of tax planning for Menlo Park, California-based Bordeaux Wealth Advisors
Adrienne Davis, a CPA and certified financial planner with Philadelphia-based Zenith Wealth Partners
Amy Irvine, an enrolled agent and CPA who's the founder of Corning, New York-based Rooted Planning Group
Rupa Pereira, an EA and founder of Apex, North Carolina-based FWJ Planning
Robert Keebler, a CPA and partner with Green Bay, Wisconsin-based Keebler & Associates
Corey Hulstein, a CPA who's the director of tax for Lenexa, Kansas-based Modern Wealth Management
Matthew Foster, a CFP and juris doctor who's a senior wealth advisor in the New York office of The Colony Group
Elliott Brack, managing director of tax services for Los Angeles-based Manhattan West
Jarot Scarbrough, a JD who is a manager in the Tax Advisory Services Department of CPA firm Anglin Reichmann Armstrong

Scroll down the slideshow to see their tips on the Tax Cuts and Jobs Act. For a look at the most important year-end tax questions, follow this link. To see a video of two tax experts discussing how to prepare for next year, watch our Leaders forum here.

The political outlook for extensions

A pledge from Democratic President Joe Biden's administration earlier this year to extend the tax cuts for people earning less than $400,000 a year and remarks this fall at the Brookings Institution by former House Speaker Paul Ryan, the Wisconsin Republican who helped write and pass the law, present some of the best available hints on the political outlook, Watson said.

"[Former Ways and Means Committee Chairman] Kevin Brady and I decided that we would make permanent that which we thought, for economic reasons and for political reasons, needed to be made permanent — like the corporate rate and the territorial system," said Ryan, who's now the president of the American Idea Foundation. "We made temporary that which we thought had a better chance of withstanding an extension under any conceivable political arrangement in the future — like the individual income tax provisions, expensing, section 199 [pass-through deductions]. So, we made temporary what we thought could get extended and we made permanent what we thought might not get extended and what we wanted to keep permanent."

Prepare for the worst

Advisors, tax professionals and clients frustrated at not knowing the rules for the future should "assume these provisions are going to sunset and plan for the worst," Chuang said.

"You definitely want to be set up for success," she said. "'Hey, this is how it's going to impact you, but if we do XYZ right now, we potentially can minimize the impact by X dollars. No one wants to have those conversations, but that's what clients are hiring us to do."

At least there’s a little time

A couple of years to "plan in the best possible way" for clients' goals sounds much more reasonable than tax proposals in Congress a couple of years ago that could have forced adjustments in a much shorter span, according to Foster. Shifts required by new laws with only a few months to prepare are "not fun for clients," he said.

"It does give time to go back and think about the overall plan first," Foster said of the 2026 expiration date. "If there's uncertainty, you try to understand what you can with certainty but know that things could change and you just have to react to them."

Follow up and follow through

After acknowledging clients' frustration and letting them know they have valid points, advisors and tax professionals' jobs call for them "to be able to successfully and clearly and easily demonstrate the plan that we think is the best option," said Brack.

"If they're not feeling good about these planning opportunities, then I have not done my job well enough yet," he said. "Advisors and tax practitioners can't just sit back and hope these things get done. It requires a tremendous amount of effort and follow through. If you don't have the right people on the team to ensure that the follow-through is handled, then it's all for naught."

Have the conversation

Once planners have "weighed out the short-term costs versus long-term costs" in the context of their clients' goals, they should move to the next step of raising the issue with them, Hulstein said.

"We need to be proactive," he said. "We need to start having conversations with these clients."

Make the projections

Advisors and tax professionals can use this time to calculate how the expiration of one provision or another might affect clients' plans, Pereira said in an email.

"Modeling those scenarios will be critical, similar to how we've done for newer provisions," she said. "Tax planning is an ongoing exercise, and certain line items on the tax return, personal or business, will merit careful attention to mitigate the adverse impact of a higher tax bill."

The areas to check

Irvine's team will start figuring out which "adjustments we might need to make" in 2025, she said in an email.

"Here are some of the things we will double check," Irvine said. "Should we advance income into 2025, if possible (for small business owners, we will push them to bill and receive as much income as possible in 2025)? We will analyze converting more to Roth IRAs. We will analyze pushing property tax payments into 2026. We will analyze pushing 2025's charitable contributions into 2026 (i.e. gift in early January vs in late 2025). We will determine if they need to adjust withholdings and possible exemptions (as of right now the number of dependents you have are irrelevant for exemptions, but important for the dependent tax credits)."

The fate of research and development tax credit amortization

This year, the part of the law that has made the biggest impact on clients of Scarbrough's firm is the fact that research and development costs, also known as research and experimental expenses, must now be capitalized and amortized over five years in the U.S. and 15 years if performed in a foreign country, he said. Before the effective date at the end of 2021, businesses could deduct the entire cost in the year of the spending, Scarbrough noted. Despite signs of bipartisan support for restoring the credit to its prior form, the provision remains in effect.

"Thus, a large R&E expense is now reduced from total expenses and only a portion of that is deductible in the year incurred," he said. "Not only has this change increased our clients' tax liabilities, but it also serves to disincentivize companies from participating in R&D."

Questions about qualified business income

The deduction of 20% of a pass-through entity's qualified business income, which is also known as the Section 199A exemption, has been a boon to clients of Davis' practice, she said.

"That's a huge value add for business owners," she said. "They're rewarding and incentivizing people to open a business to be able to take that deduction."

Biggest impacts of the law

Two aspects of the legislation have left the biggest imprint on Pereira's practice, she said.

"Not having to itemize and benefiting from a higher standard deduction when filing joint or filing head of household has been a huge relief to my clients," Pereira said. "My business clients have enjoyed the 20% QBI deduction for their flow-through entities."

Less SALT deduction in the mix

The capping of the deduction for state and local taxes at $10,000 put a dent in the previous savings for Irvine's clients, she said.

"For individuals that were able to use the itemized tax deductions due to high income and property taxes, this has negatively impacted them (in some cases significantly)," Irvine said. "We have a number of clients in New York and California, and although they may have a lower marginal tax rate, more of their money was in their top bracket. This resulted in them paying more federal tax (and some state taxes, for those states that do not allow you to itemize when you take the standard deduction)."

Potential strategies for the SALT

Provisions affecting Roth conversions, estate planning and the SALT deduction have loomed large for Keebler's clients, he said. Since the limitation may end up going away in 2026, tax professionals and their clients should keep in mind that any state or local tax hikes in 2025 may be deductible by the time they pay in April of the following year, Keebler said.

"You'd want to avoid anything that would cause a lot of SALT in 2024," he said.

Fewer itemizers thanks to SALT caps

Under the law, clients are itemizing less frequently "unless they have a lot of mortgage interest," which is smaller in a lot of cases because many homeowners refinanced in 2020 and the following year when the rates were much lower, Davis said. The law almost doubled the standard deduction.

"A lot more clients are doing the standard deduction than itemized deductions, specifically because of the state and local tax cap that they have," she said. "A lot of our clients are living in states where they're paying a lot in income taxes."

Defer and pay ahead in 2026

The SALT limitation represents one area "that's on top of everyone's mind, particularly if you live in the northeast and California," Foster noted. Since "a lot of counties and municipalities offer a nice discount" for paying early and flexibility for deferring until later in the year, advisors and clients may consider pushing back their 2026 payment to the late fall and meeting that bill and the one for the following year at the same time, he said.

"You're front-loading the deductibility of those two into your first year," Foster said.

SALT limitation expiration may not be that big of a deal for some

Any advisors, tax professionals or wealthy clients expecting to reap a windfall through SALT deductions after the sunset date may be forgetting that the "Pease limitation" reduces the value of exemptions for high-income households, Brack said.

"If you're in the high hundreds of thousands or millions of dollars, you're getting a pretty big haircut on your itemized deductions," he said. "It basically starts eating away at your itemized deductions."

The big list of potentially sunsetting provisions

The possible expiring provisions include: the lower mortgage interest deduction, the reduced rates at the top of the brackets, the higher standard deduction, the larger child tax credit, the hiked-up exemptions from estate taxes, the qualified business income deduction, the phasing out of the alternative minimum tax, altered rules for bonus depreciation and certain deductions for business-related meals, Watson noted.

"That might be one of the few things they might also try to extend as a way to offset some of the revenue loss from the other provisions," he said of the rules surrounding deductions for business-related meals and entertainment.

Other possible sunsets

Personal exemptions and medical-expense deductions could also revert back to their prior rules in the absence of any extensions, Foster noted. In the latter case, the law enabled higher medical deductions by reducing to 7.5% of adjusted gross income the prior floor of 10%. Since taxpayers can deduct qualifying medical expenses above that lower floor, the law enables them to slash income by a greater amount after incurring health care costs.

"That's going to hurt some people," Foster said. "I don't know if it makes sense to defer medical expenses."

Bracing for changing treatment of estates

The law doubled the estate tax exemption to $11.2 million for individuals and $22.4 million for couples, indexed for inflation. That reduction has been the most impactful provision of the law for Chuang's clients, she said.

"That is a substantial decrease for high net worth individuals and their estate planning," Chuang said. "If wealthy individuals have not been talking to their attorneys, they definitely should reach out sooner rather than later. You don't want to wait until January 2025 to find someone to try to help you."

Book appointments now

Keebler also recommended that any clients who may be affected by the reversion of the estate tax get an appointment on their calendar next year.

"You have to wrap your mind around that and don't wait until the last minute," Keebler said. "There are simply not enough lawyers, accountants and valuation experts to help you if you wait until after July 1, 2025, to start. You have to start in 2024. You basically want to just get a spot in line at your lawyer or accountant's office."

Time to make that gift?

Clients seeking to avoid an estate tax hit in the future may want to consider "some large, sizable gifts to take advantage" of the exemptions under the law, Foster said.

"We really like to take a look at the full balance sheet of a family," he said. "The best type of asset is one that has some nice growth potential to it. Any growth subsequent to that is not subject to your estate tax when you die. To the extent that outright gifts make sense, you definitely want to do it before 2026 happens, and you should be thinking about it now."

Communicating the urgency

The expiration date on the law's estate tax rules is just around the corner, Brack said.

"We all know two years can go by quickly, especially when it's extra work that most clients don't want to deal with. It's really important for us to continue to bring up these estate planning conversations," he said. "They start to get a little bit more motivated if they see that 40% is going to the government if they don't do anything. … If you don't bring up and have these conversations with the client, nothing's going to get done. It's about providing that service, that follow-up, kind of not taking 'no' for an answer."

How estate planning looks different today

The shifting rules around inherited estates and a shortage of CPAs these days have created more tax-planning opportunities for financial advisors, Keebler said.

"When I started doing this in the early '80s, the world was a totally different place and the exemption was $600,000," he said. "That's why the CPAs and financial advisors have made such a quantum leap in their roles in the last 10 years."

Income tax reverberations

Altered tax brackets and a higher standard deduction have created some openings for Irvine's clients, she said.

"Both the standard deduction and the itemized deduction have been most impactful to our clients, along with the tax rates and brackets," she said. "For individuals that were using the standard deduction previously, less of their income became taxable. This gave us an opportunity to recognize more capital gains and convert more of their traditional IRAs and 401(k)'s into Roth IRAs."

Hedging against higher brackets

Advisors and clients who may find themselves back in a higher tax bracket in the sunsetting of the law could take action to steer clear of the maximum hit, Hulstein said.

"That's something that advisors and clients need to be aware of," he said. "How can we frontload some income?"

A good time for a SLAT?

A spousal lifetime access trust could help wealthy people move assets off their estates to get below the shifting tax thresholds while giving spouses the ability to make withdrawals from the accounts, under certain restrictions. The strategy may not fit couples with "any sort of rockiness in the marriage," Foster said.

"You create the SLAT, and the thinking is that the spouse will be able to benefit from the assets in the account," he said. "It's a good example where you're not quite ready to gift to your children or grandchildren, but it makes sense from an estate tax point of view."

Horsetrading the trillions in Congress

Members of Congress and the President will spend much of 2025 debating "the tradeoffs involved" in letting some provisions lapse to boost tax revenue and extending others to keep the relief for taxpayers in place, according to Watson.

"The big fight would be what to do about higher earners," he said. The situation with the expiring provisions amounts to "basically a fiscal cliff both for the government and the individual taxpayers," Watson said.

"That lines up for a pretty big tax discussion in 2025. Congress has traditionally waited until the last minute to do anything on the budget," he said. "The control of Congress and the White House is going to be the big deciding factor, because, of course, the two parties have very different opinions on tax policy."