Edward Renn’s comments were featured in the Accounting Today article “Congress Has Little Time to Make Tax Changes This Year.”
As the final days of 2023 draw near, it appears increasingly unlikely that Congress will have the capacity to pass any year-end tax legislation. With 2024 being an election year and provisions such as the Tax Cuts and Jobs Act of 2017 expiring in 2025, tax attorneys such as private client and tax partner Edward Renn expect to be busy with any changes well into 2025: “Lots of things could happen in terms of the sunset,” Ed told Accounting Today, adding, “Are you going to get 39.6% back? Are you going to get higher tax brackets or are capital rate gains rates going to be more income based? Are you going to get more progressivity there where higher earners are going to pay at higher rates?”
Regarding Moore v. United States, Ed noted, “Watching the corporate 15% tax case in the Supreme Court may very tell you whether there’s going to be any life in the idea of a wealth tax going forward, or is it going to be held unconstitutional.”
“People that are in a position to do estate tax planning to transfer out significant sums to their family should do it sooner rather than later because we’re only a couple of years away from that sunset. Boy, we’re going to be really busy in the fall of 2025. If you want to consider a number of different options, and you want to talk about how it’s the family business and how we are going to handle control of the business and those sorts of issues, go see your lawyers now. Don’t wait because we’re not going to have time to deal with you in 2025. You’re going to have to be either a very established old client or a very special client for anyone to give you a customized treatment in another year and a half. It’s just not going to happen,” he said.
The IRS also released tax brackets for 2024 earlier this month: “They’re not insignificant,” Ed remarked. “I think last year’s boosts were bigger, but they’re still nothing to sneeze at. We gained $690,000 on the applicable exclusion amount piece, $1,000 on annual exclusions, and $1,500 on standard deductions for married filing jointly. It all helps. I started my career when the total amount of tax exemption available for somebody for transfer tax purposes was $600,000, so 690 is a good chunk of money. Realistically wealthier clients were in a position to gift $27 million to Gen Two or Gen Three. If they haven’t done it already, they need to take advantage of it before 2026 because I’m expecting the exemption to basically be cut at that point in time because that’s what was agreed in the 2017 tax act. That’s what’s going to happen so clients really should plan with that. Even if you did planning last year, well, for a married couple, it’s nearly another $1.4 million. Certainly, you can find something creative to do with that if you have the resources to transfer it. I thought the increase in the annual exclusion by $1,000 is useful. Most of the income tax rates where the brackets kick in went up about a little over 5%, so you can make 5% more than you did last year before you trigger the top 37% bracket. The 401(k) contributions only went up by $500, but $23,000 in deferrals are a good thing. The DC pension maximum contribution went up to $69,000, so if you’re an entrepreneur in your own small business, or you’re a professional running a practice or if you’re over 50 you can put away $76,500 pre-tax so that’s a decent number. That helps in terms of retirement planning. Another $500 on IRAs. It’s small, but if you qualify for a Roth or a deductible IRA, those exemptions have all moved up a little bit. They’re probably worth taking advantage of.”
Regarding the expiration of the Tax Cuts and Jobs Act in 2025, Ed said, “It remains to be seen how that’s going to play out.” He continued, “Given the caps that we have in place on state and local taxes, the standard deduction seems to be working for more people, more than ever. If you can bunch your deductions into one year and not have caps on them, it doesn’t do any good to pay property taxes in one year because you’re not going to be able to deduct them anyway, but if you can get interest deductions or other deductible expenses into one year, that probably makes sense to do it. It might lower your bracket or shelter more income than you’d otherwise be able to do.”
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For further information, please contact:
Edward A. Renn, Partner, Withersworldwide
edward.renn@withersworldwide.com
