For many families and businesses, these changes opened new avenues for tax planning, such as leveraging the Sec. 199A deduction on Qualified Business Income, deferring capital gains through Qualified Opportunity Funds, and electing state-level Pass-Through Entity Taxes. However, it’s important to recognize that these tax benefits are not permanent and are set to "sunset" at the end of 2025.

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As we approach this sunset date, it’s crucial for families and business owners to understand the potential impact on their tax situation and take proactive steps to plan accordingly. This blog post will explore the key aspects of the TCJA sunset and provide actionable strategies to help you navigate this uncertain legislative environment.

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The Political Landscape and TCJA's Future

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The expiration of TCJA’s provisions hinges on the outcome of the 2024 national elections, which will determine who controls Congress and the White House when the law is scheduled to sunset. Depending on the election results, we could see a full extension of TCJA, a partial extension, or a complete expiration of its provisions.

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While it’s impossible to predict the exact outcome, waiting until the last minute to make tax planning decisions could leave you with limited options. Consider the fact that TCJA itself was signed into law just 10 days before its provisions took effect in 2017. To avoid being caught off guard, it’s essential to start laying the groundwork for potential tax strategies now.

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Action Items for Your Tax Planning

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1. Assess Income and Deduction Timing:

1. Recognizing or Deferring Income: If you anticipate that your tax rate will increase post-TCJA, consider recognizing income now to take advantage of the current lower rates. Conversely, if you expect a lower tax rate after 2025, deferring income might be the better option.
2. Retirement Contributions: Decide whether to contribute to a traditional retirement account (with immediate tax benefits) or a Roth account (with future tax-free withdrawals) based on your expected future tax rate.

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2. Evaluate the Impact on Small Business Owners:

1. Qualified Business Income (QBI) Deduction: For small business owners, particularly those with pass-through entities, the expiration of the Sec. 199A deduction could result in a significant increase in taxable income. Consider accelerating income recognition if you won’t be subject to the SSTB phaseout thresholds.

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3. Understand the Return of Personal Exemptions and Itemized Deductions:

1. Itemized Deductions: Post-TCJA, more taxpayers may benefit from itemizing deductions due to the reduction in the standard deduction and the removal of the SALT limitation.
2. Personal Exemptions: The return of personal exemptions could lower taxable income for families with multiple dependents, potentially offsetting other tax increases.

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Anticipate and Adapt to the Changing Tax Landscape

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While the future of TCJA remains uncertain, the most effective tax strategies are those that are adaptable and flexible. It’s not just about preparing for one potential outcome but having contingency plans in place for multiple scenarios. Tools like Holistiplan and FP Alpha can help you run tax projections under different legislative outcomes, allowing you to make informed decisions.

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Below is a comparison guide—the “TCJA Sunset Provision Comparison Guide 2024”—that can help you explore how different legislative outcomes might impact your tax situation. While it’s just one of many resources you might find helpful, it provides a straightforward way to visualize potential changes and adjust your strategy accordingly.

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Moving Forward with Confidence

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As the TCJA sunset approaches and political discussions intensify, it’s natural to have questions about how these changes might impact your financial situation. At Clark Wealth Partners, LLC, we’re here to help you navigate these complexities with the expertise and personalized advice that our clients have come to expect.

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We encourage you to reach out to us with any questions or to schedule a meeting to discuss your tax planning strategy in more detail. We’re offering flexible scheduling options to ensure we can find a time that works best for you.

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Your financial well-being is our priority, and we’re committed to supporting you every step of the way as we navigate the changing tax landscape together.

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