Time-tested end-of-year moves might again be sensible in these last weeks of 2023, but the possible expiration of some 2017 tax reform provisions in just 27 months should figure in planning.
Without congressional action, certain provisions of the Tax Cuts and Jobs Act (TCJA)—many involving estate planning—sunset at the end of 2025.
The current estate tax exemption is $12.9 million per individual, for example, but in 2026 that exemption could plunge to about $6 million.
“Wealthy taxpayers, specifically those whose net worth exceeds $12 million, would be well-served by employing a prudent and appropriate gifting or trust strategy to begin shifting assets out of their taxable estate to their heirs,” said Brett Walters, financial planner at TBH Advisors in Brentwood, Tenn.
Gifting plans for post-2025 can help. “Taxpayers can gift to any individual up to $17,000 without filing a gift tax return, and couples can gift up to $34,000,” Walters said. “One smart move is to accelerate gifting to 529 accounts for kids or grandkids … up to five years’ worth of gifts at once, or $85,000 for 2023, to any beneficiary.”
Current high interest rates do present opportunities, planners say. “Mamely [for] qualified personal residence trusts and charitable remainder trusts,” said Timothy Laffey, head of tax policy and research advisory at Rockefeller Global Family Office in Philadelphia. “Taxpayers should also evaluate their annual exclusion and direct educational and medical gifting and look at potentially maximizing the gifting that can be done without having to use any of their lifetime gift tax exemption or pay gift tax.”
“For gifts of assets that require a qualified appraisal, such as closely held business interests, it may be strategic to wait until late in the year to finalize the gifting so that one appraisal could potentially be used for both the year-end and early-year gifting,” Laffey added.
The downturn in the market, combined with the income tax rate increases in 2026, may make Roth conversions prevalent as the year ends, planners said.
“Converting traditional or rollover IRA funds to a Roth IRA by year-end can strategically manage your tax bracket, help reduce required minimum distributions later and potentially provide tax-free income in retirement,” said Dustin Gale, senior wealth advisor at Kayne Anderson Rudnick in Los Angeles.
“By year-end, individuals also typically have a pretty good sense of where they will fall within the income tax brackets,” said Isaac Bradley, director of financial planning at Homrich Berg in Atlanta. “Roth conversions allow you to accelerate income to fill potentially lower tax brackets in the current year.”
Bunching charitable gifts in 2023 will work if the amount exceeds the still-high standard deduction, planners said.
“Take advantage of the increased standard deduction under the TCJA for 2024 and 2025, and then go back to itemizing deductions in 2026 after the provisions of the sunset,” Bradley said, adding that donor-advised funds work well for bunching, as contributions are deductible in the year made but the donor can distribute the funds to their selected charities over several years.
Advisors also recommended maximizing funding to employer-sponsored retirement plans.
“These have cut-off dates, and once the year is over you typically cannot go back and fund them more,” said Nayan Ranchhod, private wealth advisor at Ameriprise Financial in Scottsdale, Ariz.
There could be more clarification next year on what provisions are most likely to sunset, advisors say.
“Since 2024 is an election year, we anticipate that the landscape as it relates to which provisions may expire and which extended will be a lot clearer at the end of next year than it is now,” said Erik Preus, head of investment solutions at Envestnet PMC in Minneapolis.
But Walters added, “High-earning taxpayers should work under the assumption that taxes will almost certainly be higher in the future.”