The Tax Cuts and Jobs Act of 2017 resulted in lower tax rates for Americans. The act is scheduled to expire at the end of 2025 — and when it does, tax rates will revert to 2017 levels unless Congress takes action before then.
The TCJA's sunset means the majority of Americans will see an increase in how much they owe in taxes. Take a look at how income tax brackets and rates compared in 2017 and 2023:
As you can see, if you are in the 12% bracket in 2023, you would fall into the 15% bracket with the same income once the TCJA expires. If you’re currently in the 22% bracket, you will move to the 25% bracket in 2026. And if you fall in the 24% bracket in 2023, you could jump to the 28% bracket when rates increase.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Many Americans also benefited from an increase in the standard deduction amount, which doubled following the TCJA. Here’s how standard deductions and personal exemptions changed from 2017 to 2023:
The higher tax rates and expanded tax brackets plus a lower standard deduction mean many Americans could end up paying about 20% more in taxes when the TCJA expires. Here’s a breakdown of a real-life example of how much more one couple might end up paying in 2026 vs 2023:
I like to think of our current low-tax-rate environment as a “tax sale.” Just as we would stock up on items at the grocery store during a big sale, most of us would benefit from paying taxes now, rather than waiting until rates go up. If we don’t do it now, we may be forced to pay higher rates on distributions from tax-deferred investments like 401(k)s and IRAs in retirement.
We can take advantage of lower rates by implementing proactive tax planning strategies and be what I call “tax smart.” One way to do this is through a Roth IRA conversion, where money from tax-deferred accounts is moved to a Roth IRA account. You will pay taxes on the amount converted now, but you won’t pay taxes on withdrawals made later. This strategy could result in more money to live on in retirement.
At our firm, we’ve used this strategy with many of our clients, who often ask us, “Why didn’t my previous financial planner suggest a Roth IRA conversion earlier?” My answer is that many financial planners don’t specialize in tax planning. Instead, most focus only on investment management and not the other four pillars of a complete financial plan: taxes, estate planning, health care and income. I encourage you to find a team of financial planners who specialize in all five pillars to ensure you are getting the financial plan you deserve.
Interested in more information on the TCJA expiration or other tax planning strategies? Read my book, I Hate Taxes: Lower Your Taxes, Own Your Retirement, to learn more.
The appearances in Kiplinger were obtained through a public relations program. The columnist received assistance from a public relations firm in preparing this piece for submission to Kiplinger.com. Kiplinger was not compensated in any way.
Related Content
-
The AI Doctor Coming to Read Your Test ResultsThe Kiplinger Letter There’s big opportunity for AI tools that analyze CAT scans, MRIs and other medical images. But there are also big challenges that human clinicians and tech companies will have to overcome.
-
The Best Places for LGBTQ People to Retire AbroadLGBTQ people can safely retire abroad, but they must know a country’s laws and level of support — going beyond the usual retirement considerations.
-
Financial Planning's Paradox: Balancing Riches and True WealthWhile enough money is important for financial security, it does not guarantee fulfillment. How can retirees and financial advisers keep their eye on the ball?
-
A Confident Retirement Starts With These Four StrategiesWork your way around income gaps, tax gaffes and Social Security insecurity with some thoughtful planning and analysis.
-
Should You Still Wait Until 70 to Claim Social Security?Delaying Social Security until age 70 will increase your benefits. But with shortages ahead, and talk of cuts, is there a case for claiming sooner?
-
Retirement Planning for Couples: How to Plan to Be So Happy TogetherPlanning for retirement as a couple is a team sport that takes open communication, thoughtful planning and a solid financial strategy.
-
Market Turmoil: What History Tells Us About Current VolatilityThis up-and-down uncertainty is nerve-racking, but a look back at previous downturns shows that the markets are resilient. Here's how to ride out the turmoil.
-
Could You Retire at 59½? Five ConsiderationsWhile some people think they should wait until they're 65 or older to retire, retiring at 59½ could be one of the best decisions for your quality of life.
-
Home Insurance: How to Cut Costs Without Losing CoverageNatural disasters are causing home insurance premiums to soar, but don't risk dropping your coverage completely when there are ways to keep costs down.
-
Markets Roller Coaster: Resist the Urge to Make Big ChangesYou could do more harm than good if you react emotionally to volatility. Instead, consider tax-loss harvesting, Roth conversions and how to plan for next time.
