With the 2024 Presidential election underway, millions of Americans are casting their ballots, and advisors are anxiously anticipating the potential for significant tax law alterations. The impending expiration of key provisions within the 2017 Tax Cuts and Jobs Act (TCJA), enacted under former President Donald Trump, creates a climate of uncertainty surrounding future tax liabilities for individuals and businesses across the country. The outcome of the election, pitting Democratic candidate Kamala Harris against Republican candidate Donald Trump, will profoundly influence how Congress approaches the extension or modification of these provisions, with far-reaching consequences for taxpayers in 2026 and beyond.
Key Takeaways: Tax Uncertainty in the Aftermath of the 2024 Election
- The expiration of key provisions within the 2017 Tax Cuts and Jobs Act (TCJA) after 2025 creates significant uncertainty regarding individual and corporate tax liabilities.
- Depending on Congressional action, over 60% of taxpayers could face higher taxes in 2026.
- Income tax brackets could revert to pre-TCJA levels, impacting retirement planning and other financial strategies.
- The outcome of the 2024 Presidential election significantly impacts the fate of the TCJA provisions and future taxation.
- Proactive tax planning is crucial for individuals and businesses to prepare for various potential scenarios.
Planning for Possible Higher Taxes in 2026
According to the Tax Foundation, more than 60% of taxpayers could experience a tax increase in 2026 if the TCJA provisions are allowed to expire without Congressional intervention. This projection highlights the considerable financial implications for a vast segment of the American population. However, the degree to which individual taxpayers are affected depends heavily on their specific tax circumstances and income levels.
Uncertain Congressional Landscape
The current political climate adds another layer of complexity to this issue. With the control of both the House and Senate hanging in the balance, the ability of either party to push through sweeping tax legislation remains uncertain. This political stalemate makes accurate predictions concerning future tax changes difficult.
Budgetary Concerns Exacerbate the Issue
Further complicating the situation is the ongoing concern over the growing federal budget deficit. With the deficit having exceeded $1.8 trillion in fiscal year 2024, lawmakers might be hesitant to extend tax cuts that could further strain government finances. This economic reality could exert significant pressure on any attempts to extend or modify TCJA provisions.
Individual Tax Implications
The potential reversion to higher tax rates in 2026 has many individuals and families adjusting their financial plans. Many are accelerating income into 2024 and 2025 to minimize their tax burden under the potentially lower rates, according to certified financial planner Jim Guarino.
Impact on Retirees
Guarino emphasized the significant consequences for retirees, particularly those with substantial pre-tax retirement savings. The mandatory required minimum distributions (RMDs), which most are required to start taking at age 73, will be considerably higher in a higher tax bracket. This will impact a substantial portion of the population as the Baby Boomer generation enters and progresses through retirement years.
The Complexity of Tax Planning
The impending changes, however, don’t lend themselves to easy, one-size-fits-all solutions. CPAs and financial advisors are finding that a significant amount of personalized analysis is required to mitigate the impact of potential tax increases. As financial planner, Mark Baran, aptly highlights, “Every tax profile is different“. The ideal strategies differ depending on specific incomes, investments, and individual circumstances.
The Political Battle Over Tax Law
It is important that we don’t forget that the potential changes and uncertainty are not just driven by the election but are fueled by intense political tension. Various interest groups are already mobilizing to influence lawmakers and shape the outcome of any TCJA-related legislation. This active lobbying promises to affect whatever legislation is eventually passed.
Premature Decision Making
Baran advises against making hasty decisions based on speculation. “Pulling the trigger to do something is a big decision,” he cautions. “I think it’s premature most of the time.” While the potential for changes makes planning essential, acting rashly could have unforeseen negative consequences.
Estate Planning as an Exception
An exception to the “wait and see” approach might be estate planning. Given the long-term nature of estate plans, the complexity of the situation, and the potential for significant tax adjustments, advisors frequently recommend proceeding with proactive estate planning, even amidst ongoing political uncertainty.
The Importance of Proactive Tax Planning
Regardless of the election outcome, proactive tax planning is crucial for both individuals and businesses. Taking steps to prepare for potential tax increases can mitigate potential financial shocks. Even small preventative measures can have a significant impact. Taxpayers should consult with qualified tax advisors create strategies tailored to their specific circumstances. It is important to keep in mind that the uncertainty surrounding the future of the TCJA is not one that quickly disappears, and proactive planning and preparedness are crucial.
