The upcoming 2024 election will have a major impact on tax policy, specifically provisions created by the Tax Cuts and Jobs Act (TCJA). If Congress fails to act, many provisions of the TCJA will expire at the end of 2025. As tax planning season approaches, it is important to keep the following tax provisions in mind to limit the possible impact if these provisions expire.
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Individual Tax Changes
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1. Individual Tax Rates: The tax brackets will revert back to the higher rates. The highest tax bracket will be raised back to 39.6% from the current rate of 37%.
2. Standard Deductions: The standard deduction was doubled to $12,000 and $24,000 under the TCJA for single filers and married filers, respectively. Upon expiration, these will be cut in half.
3. Itemized Deductions
a. State and Local Tax Deduction: The itemized deduction for state taxes was limited to $10,000, which significantly impacted individuals residing in high-taxed states. The expiration will open up itemized deductions to more taxpayers by eliminating the cap.
b. Mortgage Interest Deduction: The TCJA reduced the limitation on mortgage interest to the first $750,000 of debt, and this will revert back to $1 million. Interest on home equity loans will once again be allowed for loans less than $100,000.
c. Miscellaneous Itemized Deductions: The TCJA eliminated deductions for tax preparation fees, advisory fees, and certain other expenses. The deductions will be brought back to the extent greater than 2% of adjusted gross income.
4. Child Tax Credit: The $2,000 per child credit will be reduced to $1,000 per child.
5. Personal Exemptions: Eliminated under the TCJA, the $2,000 exemption per taxpayer and qualified dependent will be returned.
Business Tax Changes
1. Qualified Business Income: Under the TCJA, owners of pass-through entities and sole proprietors could claim a deduction up to 20% of qualified income. This beneficial deduction will no longer be available.
2. Bonus Depreciation: The applicable percentage for 2024 is a 60% depreciation deduction on qualified property. This amount will continue to be reduced by 20% each year until sunsetting for property placed in service after December 31, 2026.
3. Meals and Entertainment: Employers are currently allowed a deduction for meals provided to employees at the business location for the convenience of the employer. A deduction will no longer be allowed for these meals if the provision is allowed to expire.
Estate and Gift Taxation
1. Exclusion: The exclusion grew from $5,490,000 to $11,180,000 when the TCJA was implemented with subsequent adjustments for inflation. This exclusion will revert back closer to pre-TCJA levels. Taxpayers should start planning to limit the exposure that will result from the reduction in the exclusion. A few planning considerations include:
a. Transfer income-producing assets to family members within lower tax brackets.
b. Consider the timing of deductions, since these may carry additional benefits within years other benefits expire.
c. An option is to harvest capital losses, which involves selling assets with large capital losses that can be carried and utilized in a future year.
d. Participate in charitable giving.
Taxpayers should be proactively working with a qualified tax advisor to determine the potential impact of the expiration and implement planning strategies that mitigate them. If you would like to discuss the implications of the TCJA provisions expiring for you or your business, please contact your Citrin Cooperman advisor or Joshua Siegel at jsiegel@citrincooperman.com.
“Citrin Cooperman” is the brand name under which Citrin Cooperman Advisors LLC and Citrin Cooperman & Company, LLP, independently owned entities, provide professional services in an alternative practice structure in accordance with applicable professional standards.
Joshua Siegel is a director in Citrin Cooperman’s Tax Practice with over 22 years in tax and accounting. He has experience providing a wide variety of accounting and tax services to privately owned businesses, not-for-profit organizations, individuals, and corporations and individual fund investors.
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