What Happens if Nothing Happens?
Expiration of the TCJA (aka ‘Trump Era’) Tax Cuts Next Year
Starting in 2018, the Tax Cuts and Jobs Act (TCJA) temporarily reduced income tax rates almost across the board. However, because Congress was unwilling to match these tax cuts with spending cuts, the law was written to expire at the end of 2025.
This means that at the end of next year, someone with a taxable income of $100,000 will see their tax bill go up by approximately $3,000. While not a life-changing amount of money, it’s not chump change.
Even if the new President and Congress wanted to extend these tax cuts, they would have to act quickly to negotiate and pass the law before year’s end. This is not an outcome on which we would be willing to bet $3,000, especially with a ballooning National Debt and a looming Social Security/Medicare funding shortfall.
Our best option for hedging this bet is to look for opportunities to pay taxes at today’s known rates vs. risking having to pay taxes at a higher rate in the future. This strategy, sometimes referred to as ‘paying the devil you know vs. the devil you don’t,’ is relatively simple but not easy. After all, it requires voluntarily paying taxes today vs. kicking the can down the road, hoping that you won’t mind paying them in the future.
Two ways we can do this are through ROTH conversions and/or harvesting capital gains, both of which we will discuss in our Fall meetings together. Until then, please consider how much in taxes you would be willing to pay today to protect yourself from having to pay more in the future.
“Today, it takes more brains and effort to make out the income-tax form than it does to make the income.” – Alfred E. Neuman
“Friends and neighbors complain that taxes are indeed very heavy, and if those laid on by the government were the only ones we had to pay, we might the more easily discharge them; but we have many others, and much more grievous to some of us. We are taxed twice as much by our idleness, three times as much by our pride, and four times as much by our folly.” – Benjamin Franklin
Any opinions are those of Landon Vick and not necessarily those of RJFS or Raymond James. The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete; it is not a statement of all available data necessary for making an investment decision and it does not constitute a recommendation. Raymond James and its advisors do not offer tax or legal advice. You should discuss any tax or legal matters with the appropriate professional. Be sure to contact a qualified professional regarding your particular situation before making any investment or withdrawal decisions.
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