BY: Jonathan D. Berry, J.D.
Senior Vice President
(817) 502-3931
Sunsets are good when you are with loved ones on the beach but bad when it is your last sunset. Beginning in 2026, the IRS will sunset the limits for many tax brackets and exemption amounts. Here are a few items of note:
• Tax brackets will draw back – this means that you may be thrust into a higher income bracket with the same income. The bottom line for taxpayers on ordinary income is that a higher percentage of their paychecks will be going to pay taxes without the benefit of a raise.
• Trusts will be taxed at a higher rate.
• Standard deductions will be reduced, meaning if you have not had to itemize, you may need to save all receipts and track spending. With a low personal deduction, those expenditures will increase your personal tax deduction. (So long as the expenses are deductible).
• Many new deductions will also be subject to income limitations and phaseouts. These phaseouts and limits will be a double whammy because they are being put in place on lower income thresholds.
• Alternative Minimum Tax (AMT) is going to be back in play much more than in the previous years. Yes, this means if the government feels you have made too much and have not paid enough, you could be subject to an alternative minimum tax.
• The largest issue for planning is the reduction of the Lifetime Exemption amount for the Estate and Gift Tax. Currently, the amount an individual may exempt from their estate is $13,610,000 dollars. This is going to be cut in half if no legislation is used to continue the current model. This will prove to be difficult for many with illiquid assets such as small businesses, farmland, and operations that have high values with low cash flow. Further, it will increase the number of individuals required to file an estate tax return upon their death or the death of the remaining spouse. This tax on anything over the lifetime exemption amount will be 40%. This means that for every $1M dollars over the exemption amount, the government will require $400k.
Don’t let the expiration of the estate tax exemption diminish your legacy. Discover the benefits of trusts and the advantages of a corporate trustee. Talk to an estate planning expert today to find the best strategy for your unique circumstances.
