Are Taxes Going Up?
Regardless of who wins in the upcoming elections, there are going to be tax implications that are going to affect everyone. What’s happening is the Tax Cuts and Jobs Act is a temporary eight-year window. It was only meant to last from 2018 to the end of year 2025. And when that expires, which it’s set to do automatically, the tax rates will revert to the system we used prior to 2018.
Because of the Tax Cuts and Jobs Act, we’ve had tax cuts and an increased standard deduction. But some of the drawbacks are it’s more difficult to itemize or take other deductions people are used to taking like mortgage interest or charitable giving. If you’re working with a financial advisor alongside a CPA, you can find what options are available to use.
Whether you want it to or not, the fact is these rules are going to sunset at the end of 2025. Yes, Congress could make it permanent, but the partisanship in Washington makes it unlikely that will happen unless one party or the other wins big in 2024. But the other side of the coin is that the Congressional Budget Office has said it would add too much to the National Debt to keep those rules permanent. So they’ve got to come up with something to address the growing debt problem this country has and that means that taxes are bound to change somehow.
The 12% tax bracket is probably the cheapest we will ever see it in our lifetimes right now. My father will occasionally joke that taxes are on sale. What he means by that is when the Tax Cuts and Jobs Act expires that 12% bracket becomes 15%. The 22% will go to 25%, the 24% to 28%, and so on and so on.
If the tax rates go up, what does that mean for you? Well, we still have some time in 2024 and 2025 to do what we call tax planning. In October, November and December, our financial advisors and CPAs will meet with our clients and we look at what income they are expected to bring in for the year. We find that people are not using all of what we call their tax buckets. Oftentimes, we can do Roth Conversions, other income saving plans or strategies with our CPAs. We figure out how much room is still left in their tax buckets, then turn these pre-tax dollars that are in 401(k)s and Traditional IRAs, into dollars taxed at these lower rates. But this is not a scattershot approach. It takes a measured hand to make sure you implement these strategies without landing on a tax landmine or exposing yourself to any undue tax burdens. That’s why it is so beneficial to have a financial advisor that works alongside a tax advisor. So these details aren’t missed that end up costing you money down the road.
About the Author
Matt Goolsby is a contributing author of Retirement Help. Matt decided to follow in his father, Danny’s, footsteps. Specializing in business development and logistics for Market Advisory Group, he is a founding partner for the company and performs in an advisory role for the offices in Wichita and the Kansas City metro area, and host of Retire Hour. Matt enjoys helping reduce risk and managing personal finances to solidify retirement goals. “It’s rewarding to help so many with concerns and goals.”
Roth accounts require the owner to be 59.5 years old and have had the account open for 5 years to take penalty-free withdrawals.
Investing involves risk, including possible loss of principal. No investment strategy can ensure financial success or protect against losses.
This information is being provided only as a general source of information and is not intended to be the primary basis for financial or estate planning decisions. It should not be construed as advice designed to meet the particular needs of an individual situation. Please seek the guidance of a financial professional regarding your particular financial concerns. Consult with your tax advisor or attorney regarding specific tax issues.