Tax Cuts and Jobs Act - Summer 2024 Update

Although it is the middle of summer, it is Tax Planning time for me and my clients. Yes, I spend the summer focusing on trying to keep my clients from tipping Uncle Sam. Considering 90% of clients think tax planning is important, 90% of advisors agree, but only 25% of advisors actually request tax returns annually from their client shows there are not many of us out there doing the tax planning work. I won’t get into the deep dive work we do (I’ll save that for another day), instead I want to start what will surely be a lot of articles over the next 1.5 years on the expiring TCJA (Tax Cuts Job Act) tax rules that revert back to the old law come January 1, 2026. Today I just want to hit some highlights.

• When the TCJA was passed the changes were only able to be in place for a decade. Well, except for cuts to corporate tax rates which became permanent.

• Again, this means current rules will expire at the end of 2025.

• Since I cater to physicians, I am going to be focusing on incomes on the higher end of the spectrum.

• A quick summary of the changes includes moving into higher tax brackets faster.

• For example, let’s say a Married Filing Jointly couple makes $350,000 this year (I am doing this comparing current tax brackets under TCJA and also if the TCJA brackets had already been rolled back to pre-TCJA rates). Under current TCJA rates they would be in the middle of the 24% Federal Income Tax bracket. Under pre-TCJA rates (adjusted for inflation), they would find themselves in the 33% bracket.

• Fortunately, they would remain in the 15% Long Term Capital Gains bracket.

• Their current Standard Deduction of $29,200 would also change. It would roughly be cut in half to $15,750. Personal Exemptions would return to the tune of $10,100. I am confident you can do the math and see this number is a bit lower under the reversion to pre-TCJA world.

A few comments to wrap things up.

• Again, I will be talking about taxes frequently over the next 1.5 years. This is because it is one of the most important topics to my physician clients. Seriously, does anyone ever feel the need to tip Uncle Sam?

• Tax Planning is not something to be done at the end of the year or waiting until whatever happens with TCJA the end of 2025. This is why I do Tax Planning every summer, as well as tax management with investments throughout the year.

• My prediction is that no matter who wins the election this year, it will be toward the tail end of 2025 before we see any final action on what happens with TCJA.