Tax Planning

Many provisions from the Tax Cuts and Jobs Act (TCJA) are set to expire at the end of 2025. Unless Congress acts, tax brackets will revert to higher pre-2018 rates, the standard deduction will decrease, personal exemptions will return, and the $10,000 SALT deduction cap will expire. The net effect varies by income level and filing status. Understanding both scenarios helps with multi-year planning decisions.

Roth conversions tend to be most advantageous when your current tax rate is lower than your expected future rate. Common windows include early retirement years before Social Security and RMDs begin, years with unusually low income, or when you expect tax rates to rise. The conversion amount should be calibrated to stay within a target tax bracket. Converting too much in one year can push you into a higher bracket and reduce the benefit.

Compare your total itemizable deductions (mortgage interest, state and local taxes, charitable contributions, medical expenses above 7.5% of AGI) against the standard deduction for your filing status. If itemized deductions exceed the standard deduction, itemizing saves more. Some taxpayers benefit from 'bunching' deductions, concentrating charitable gifts or medical procedures into a single year to exceed the standard deduction threshold.

Tax-loss harvesting involves selling investments at a loss to offset capital gains or up to $3,000 of ordinary income per year. Unused losses carry forward indefinitely. The IRS wash sale rule prevents you from repurchasing a 'substantially identical' investment within 30 days. When done systematically, harvesting can improve after-tax returns by deferring tax liability, though it does not eliminate the tax, it postpones it.

If you have income not subject to withholding (self-employment, investments, rental income, retirement distributions), you may owe estimated taxes quarterly. The IRS expects you to pay at least 90% of your current year tax or 100% of last year's tax (110% for high earners) to avoid penalties. Underpayment penalties are calculated quarterly, so timing matters even if your total payments are sufficient by year-end.