2025 Tax Changes: What High-Net-Worth Investors Need to Know

Preparing Your Portfolio for the TCJA Sunset

By Kelley Muhsemann
Marketing Manager

The Tax Cuts and Jobs Act (TCJA) of 2017 marked one of the most significant overhauls of the U.S. tax code in decades. Among its many provisions were changes that directly affected high-net-worth investors. While predicting the future is impossible, the sunset of the TCJA is a unique instance of a foreseeable event that we can prepare for with great certainty. As 2025 nears, it’s crucial to understand what the expiration of specific TCJA provisions means for your financial planning and investment strategies.

Overview of the TCJA: Enacted in December 2017, the TCJA aimed to stimulate economic growth by reducing tax rates for individuals and businesses. Some key provisions of the TCJA included:

  1. Reduction in Individual Tax Rates: The act lowered tax rates across various income brackets, resulting in lower tax liabilities for many individuals.
  2. Increase in the Estate Tax Exemption: The estate tax exemption was doubled, providing significant estate planning opportunities for high-net-worth individuals.
  3. Limitations on State and Local Tax (SALT) Deductions: The TCJA imposed a $10,000 cap on the amount of state and local taxes that individuals can deduct from their federal income taxes, impacting taxpayers in high-tax states.
  4. Changes to Alternative Minimum Tax (AMT): The act increased the AMT exemption and raised the income thresholds at which the exemption phases out, reducing the number of taxpayers subject to the AMT.
  5. Qualified Business Income Deduction (QBI): This provision allowed certain pass-through business owners to deduct up to 20% of their qualified business income, providing meaningful tax savings for entrepreneurs and small business owners.

The TCJA Impact on High-Net-Worth Investors: The TCJA brought several benefits to high-net-worth investors, including lower income tax rates and increased estate tax exemptions. However, as the expiration date of certain TCJA provisions approaches, investors must consider the potential impact on their tax liabilities and financial planning strategies.

  1. Return to Previous Tax Rates: Unless Congress takes action to extend or modify the TCJA provisions, tax rates for individuals could revert to pre-2018 levels. High-net-worth investors may see an increase in their marginal tax rates, potentially affecting their after-tax investment returns and cash flow.
  2. Estate Planning Considerations: The doubling of the estate tax exemption provided significant opportunities for high-net-worth individuals to transfer wealth to future generations tax-efficiently. However, without legislative action, the estate tax exemption could revert to pre-2018 levels, necessitating a review of estate planning strategies.
  3. Impact of SALT Deduction Cap: Taxpayers in high-tax states have been particularly affected by the $10,000 cap on State and Local Tax (SALT) deductions. As this provision remains in effect, high-net-worth individuals residing in states with high income and property taxes may face higher overall tax liabilities.
  4. Uncertainty Surrounding QBI Deduction: The Qualified Business Income (QBI) deduction for pass-through business owners is scheduled to expire after 2025. Without clarity on whether this provision will be extended, business owners may need to reassess their tax planning and investment strategies.

With certain provisions of the TCJA set to expire in 2025, investors should stay informed about potential changes to the tax code. To help navigate these changes, download our free guides: “What Issues Should I Consider Before and After the TCJA Sunset Provision Occurs?” and the “TCJA Sunset Provision Comparison Guide.”

If you have questions regarding The Tax Cuts and Jobs Act (TCJA) of 2017, or financial planning and investment strategies, contact our team of CERTIFIED FINANCIAL PLANNERTM (CFP®) professionals at 631.218.0077 or at info@rwroge.com and schedule a complimentary discovery call, or click here to get started.


R.W. Rogé & Company, Inc. is an independent, fee-only financial planning and investment management firm serving clients locally and virtually across the country, with Long Island, New York, Beverly, Massachusetts, and Naples, Florida office locations. R.W. Rogé & Company, Inc. was founded on a “client first” culture and proudly commits to acting in your best interest as a fiduciary. We help clients Plan, Achieve, and Live® the life they want since 1986. To learn more about how we do this, click here.

 

 The Author used elements of OpenAI to aid in creating this article: OpenAI. (2024). ChatGPT (3.5) [Large language model]. https://chat.openai.com 

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