Brace Yourself: Impending Tax Changes and the Uncertain Future

Video Transcript:

Hey folks this is Jeff Camarda PhD, your wealth do with must knows about these big tax law changes will they harm your wealth tackling the labyr te Labyrinth there’s a word I use very often the Labyrinth Maze of us tax regulations to file your return can already be headache inducing however brace yourself for impending tax related stress and from the Washington from Washington in the near future where really Washington’s gridlock by December 31st 2025 not so far away anymore crucial elements of the 2017 federal tax law the tax cuts and jobs act are set to expire once its deadline hits these Provisions will revert to their pre 17th state effectively undoing the sweeping changes and many tax cuts introduced during the initial year of the Trump Administration the first Trump Administration essential aspects of the tax code will be open for reconsideration from tax rates and state of deductions to the treatment of business income exemption limits on significant transactions like inheritance or gifts and deductions for state and local taxes if Congress remains inactive and my money’s on inactivity especially the way the political wind has blown strong over the past few years the tax landscape in 26 will abruptly revert to it pre 17 configuration potentially leading I think certainly leading to trillions of dollars in additional liabilities for taxpayers and a corresponding increase in revenue for the federal government adding to the complexity the pre 17 tax code factored in Provisions for future inflation adjustments further complicating estimates for crucial elements of the federal tax bracket if the law sunsets as planned and it’s planned I mean that’s the existing law unless they change the law this is happening folks and I I really doubt that they’re going to get into Congress in the next couple of years merely preserving the current tax code might appear to be a more manageable option however the Congressional budget office estimates that retaining all expiring or less generous Provisions could cost a staggering 3 and A5 trillion by 2023 and as you know from my other videos and writings in wealth education I think the federal government is on a is on a a tragic trajectory to hit the mountain with costs of entitlement program soal security Medicare skyrocketing the deficit just mounting Beyond World War II levels projected actually double to that level pretty soon and tax revenue is not nearly making up the Gap so this imp Penny tax upheaval system stands directly from the 2017 tax overhaul While most Americans experience tax reductions residents in high tax states fac increases due to the $10,000 cap on State and local tax deductions repealing this provision would be welcome news for affected areas nevertheless the overall impact of the tax overhaul and lightened the um the tax burden for most of the nation albe it at a considerable expense as we just highlighted this slow moving tax storm is a direct consequence of the tax overhaul of 17 for most Americans but not all taxes decline many people in states with high state and local taxes experience tax increases because state and local tax deductions were capped at $10,000 that’s the INF salt uh cap the expiration of that provision would be good for the good news in those neighborhoods in most of the country but the net effect of the tax overhaul was a lighten burden this laress made the tax law expensive on a Gargantua scale Congress estimated that would cost the federal government 1 a. half trillion in foregone tax revenue by 2027 but Congress offset the C cost by building in the December 31st 2025 expiration a delayed ser series of tax increases for most people in the country starting in 2026 if it’s allowed to uh if the law doesn’t change in 20125 or sometime in 26 if Congress is aversion of meeting critical fiscals deadlines is any guide Congressional leaders and the next president will be thrashing out a solution to the entirely predictable tax dilemma whoever the politicians are they will try to avoid tax increases and probably also try to avoid increasing the budget deficit much in no small part because of the 17 tax cuts the deficit reached 1.7 trillion in the 2023 fiscal year some kind of tax deal will eventually be reached I think maybe but I you know it’s far from certain but I really have no idea what the tax Cod will look like in 2026 in an Ideal World you wouldn’t run a tax system that way but this is what we’re stuck with aside from the cap on State and local reductions here are the highlights the important stuff of changes in the tax toad schedule take place January 1st of 26 if there’s no change in a law um the marginal tax wage will increase the highest rate will will rise to 39.6% from 37% that’s on top of fic taxes payroll tax other stealth taxes by the way that’s just the ba this just the basic highest bracket rate the income levels for seven tax brackets will be lowered raising tax liabilities for millions of people the cost of extended is part of the tax law of 1.8 trillion the standard deduction for 2024 taxpayers can Bel 14,600 if they’re single 292 if they’re married and filed jointly that 90% of taxpayers now uses deduction the standard deduction before the 27 uh 17 law the standard deduction was just 6,500 for single taxpayers and 13,000 for those who filed jointly in 26 the standard deduction would return to the old levels plus inflation adjustments will denominal which means your standard reduction is going down big time the cost of extending this about 1 trillion child tax credit is $22,000 per child for those who qualify um pening legislation would increase it to through 2025 it’s scheduled to be dropped in 2026 to $1,000 the cost of an extension 600 million for this this is a big big one for a lot of Kamar clients and taxmas clients the business pass through deduction um the Internal Revenue code section 199a it allows some self-employed people whose business income passes through a lot of people a lot of people who passes through to the personal return to deduc 20% of qualified income basically you get a pass on a fifth of the income from most businesses she’s not taxed at all that’s what that means after Sunset their individual tax rates would be opposed the cost basically you’re going to pay tax on the entire amount that deduction disappears it was will cost the federal government about 500 and $50 billion um if it if it’s if it’s extended the Alternative Minimum Tax was originally intended to make sure rich people paid the least of income tax it affects very tiny percent of taxpayers but would be applied to to much Pro like 40 times as many as currently after some said according to nonpartisan tax policy Center the cost of an extension of that if they don’t um if they allow the existing law to not Sunset would be about a billion dollars finally near and dear to my heart Estates in lifetime gifts valued of 13.6 million are exempt as per person currently with a sunset those numbers would drop to about 5 million per person plus an inflation adjustment and this is a really really big deal for many of you watching because to the extent that you haven’t done the right Estate Planning and got assets out of your estate tax-free the tax-free amount is going down big time so action soon at quick action is required if you may be disposed if you’re worth more than5 or $6 million um as an individual or expect to be you know at the um at your life expectancy a shi in the estate tax threshold could create a grim the rich person’s problem you might save a ton of money by timing to death of a wealthy benefactor very carefully over the next couple of years the same is true for gifts if you have millions of gifts to bestow it might be smart to accelerate your gifting and set up the appropriate trust and and so forth effective and you may tax planning require some sense of what the tax will look like in the years ahead but it’s exactly what we don’t have we don’t have Clarity best to plan for the worst get the planning done and get that stuff out of your taxable estate shifting income and let’s say taxable events like the death of a rich ant from 2026 into 2025 might save you some money assuming the current tax rules expire on schedule but Congress might well step in taxes might not rise and your various efforts could be a colossal waste of time however I still think the planning is very prudent plan for the worst case scenario if you have to trust it up properly you really still have you know enough access to the money not to notice very much as well as uh upsetting you dear ant who’s uh um whose demise may be accelerated for tax reasons in fact tax rates could be cut again and the budget deficit might swell much further and even if it seems rational that they won’t much depends on a nation’s elections American politics is obviously not very rational that much is clear the best you can do is apply extensive tax expertise to develop all weather tax reduction Solutions like the Camarda and taxmaster is very passionate about building for clients if you listen to the end thank you so much for your stamina that’s it for now thanks for watching this is Dr Jeff Kar until next time we’ll see you