Top-ranked advisors are preparing for the potential expiration of Trump's tax cuts after 2025.

• Top-ranked advisors are preparing for a potential tax increase in 2025 as trillions of dollars in tax breaks enacted by former President Donald Trump are set to expire.
• The Tax Cuts and Jobs Act enacted several individual tax law modifications that may expire in 2025, including reduced tax rates, increased standard deductions, and a larger estate and gift tax exclusion.
• Estate planning strategies and tax moves such as accelerating income and deferring deductions are the main focus of advisors.

Top-ranked advisors are preparing for a potential tax increase in 2025 as trillions of dollars in tax breaks are set to expire.

The Tax Cuts and Jobs Act of 2017, enacted by former President Donald Trump, introduced temporary tax changes for individuals. These provisions will expire in 2025 unless Congress takes action to extend them.

The new tax bill includes lower federal income tax brackets, larger standard deductions, a more generous child tax credit, a 20% deduction for pass-through businesses, and higher estate and gift tax exemptions, among other provisions.

Congress may not be able to extend any provisions of the TCJA due to the uncertain control of the Senate, House, and White House.

Financial advisors have begun tax planning for clients who may be impacted. Some of their key strategies include:

Estate planning is a 'large focus'

Under the TCJA, wealthy Americans can transfer money to their next generation without paying estate and gift taxes due to a significantly higher exemption.

In 2024, the lifetime estate and gift tax exemption will be $13.61 million for individuals or $27.22 million for married couples. However, if Congress does not extend the provision, the limit will decrease by roughly half after 2025.

Those who exceed certain limits may be subject to a maximum tax rate of 40%.

Peter Traphagen Jr., managing director of Traphagen Financial Group in Oradell, New Jersey, which ranked No. 9 on CNBC's 2024 FA 100 list, stated that it has been a significant emphasis for them.

Estate planning strategies utilize exemptions to remove assets from the estate while alive. Nevertheless, methods differ based on family's wealth, objectives, lifespan, and other variables.

An investment advisor representative based in Winston-Salem, North Carolina, stated that plans can include trusts, gifts to beneficiaries, direct payments to education institutions or medical providers, funding a 529 college savings plan, and other strategies.

Abernethy, who is also the chief compliance officer for Salem Investment Counselors, stated that once an asset is no longer part of your estate, it stops earning interest or compounding.

'Accelerate income' before tax hikes

Some advisors are also planning for higher federal income tax brackets after 2025.

If Congress does not act, the brackets will return to their 2017 levels, resulting in percentages of 10%, 15%, 25%, 28%, 33%, 35%, and 39.6%.

Ferguson Wellman Capital Management in Portland, Oregon, where Samantha Pahlow serves as wealth management chair, is currently exploring tactics to boost income into lower tax brackets, according to Pahlow. The firm has been ranked No. 10 on the FA 100 list.

She mentioned the possibility of converting Roth individual retirement accounts or recognizing business income earlier.

Businesses that pass through, such as sole proprietors, partnerships, or S corporations, may want to speed up their income to take advantage of the 20% qualified business income deduction, which could expire after 2025, according to Traphagen.

Consider 'deferring deductions'

Filers can choose between claiming the standard deduction or their total itemized deductions, whichever is greater. However, after 2025, they may be more inclined to itemize if the standard deduction is reduced by half.

In 2024, the standard deduction for single taxpayers will be $14,600 and $29,200 for married couples filing jointly. As a result, most filers will not take advantage of itemized tax deductions, such as those for charitable contributions, medical expenses, and state and local taxes, according to experts.

With a lower standard deduction scheduled for 2026, you may want to consider "deferring deductions," such as a donation to charity, Pahlow advised.