Bruce Helmer and Peg Webb

The Tax Cuts and Jobs Act (TCJA), signed into law in December 2017 and taking effect in January 2018, is set to expire on Dec. 31, 2025, unless Congress acts to extend it.

The TCJA had a lot of great tax-saving measures — too many to fully describe in this article — but the major ones included reduced tax rates for individuals, a higher standard deduction, a lowering of the alternative minimum tax (AMT), and a greatly increased federal estate and gift tax exemption. Unless Congress steps in to pass new legislation, all of these will go away at the end of 2025.

Fortunately, there are some tax strategies that you can use to lower your future tax bills. However, some of the more powerful ones take time to implement. So it’s not too early to start now.

What’s changing in January 2026?

Many federal income tax provisions under TCJA will revert to pre-2018 levels in the absence of Congressional action. Taking 2017 federal income brackets for illustration purposes, we estimate the impact on your income taxes as follows:

• Federal income tax rates and brackets: A single filer making between $100,526 and $191,950 in Adjusted Gross Income (AGI) currently pays a federal income tax of 24%. After TCJA expires, a taxpayer that falls most closely into that income bracket will pay 28% (depending on how the final 2026 income tax brackets are set).

• Standard deduction amounts: Married couples filing jointly can take a standard deduction of $29,200 in 2024; that amount will be cut to about $12,700.

• Alternative Minimum Tax exemptions and phaseout amounts: Created to ensure that high-income taxpayers pay a minimum amount of tax, the AMT’s current exempt phaseout of $609,250 for a single filer will be reduced to roughly $120,700.

• Child and other dependent tax credits: Currently, taxpayers can take a tax credit of $2,000 for each child; that credit will be cut in half, to $1,000, in 2026. The other dependent credit amount of $500 will go away completely.

There is at least one silver lining: The available limit on state and local tax (SALT) deductions will expire, meaning that taxpayers in high-tax states will be able to deduct the amount of state and local taxes they pay from their federal returns.

Income tax strategies to consider

There are at least two simple ways to prepare for the possibility of higher income tax brackets in 2026:

• Bring income forward, if you can: Accelerating income from bonuses or consulting work into 2025 will help lower your taxable 2026 income. Similarly, try not to defer income into 2026, as that income may be subject to higher rates.

• Consider Roth conversions: When you transfer money directly from a traditional IRA to a Roth IRA, you’ll pay taxes on the converted amount at your ordinary rate, so by acting before the end of 2025, you effectively “buy” taxes on the sale.

Estate planning strategies to consider

For high-net-worth investors and families, the sunsetting of TCJA estate planning benefits will be significant. The federal estate tax exemption will revert to pre-2018 amounts (adjusted for inflation), and the new exemption amounts will be roughly half the current amount.

Single filers who can now shelter up to $13.61 million will see that exemption amount cut to about $7 million (taking the 2017 amount and indexing it to inflation).

One can see the consequence of not taking any steps to protect an estate in the following example:

An elderly married couple’s estate currently valued at $20 million is not subject to estate tax, but in two years, it will be when TCJA expires. They currently have basic wills that leave everything to each other.

The couple figures under the current exemption amount of $27.22 million, they don’t need to worry about estate taxes. But let’s say Congress takes no action on the exemption question, and the federal exemption amount reverts to $14 million. At that point, their joint estate would be about $6 million over the exemption amount. At a 40% tax rate, the cost to their heirs from their inaction would be approximately $2.4 million, trimming the value of the estate by 12%.

Whether you are single or married filing jointly, if your net worth places you close to the 2017 federal exemption amount, you should review your tax plan with your financial adviser and estate attorney. Among the strategies you may wish to consider are the following:

• Annual and lifetime gifts: You can make annual tax-free gifts of up to $18,000 in 2024 to any number of people provided that your total lifetime tax-free gifts don’t exceed $13.61 million in 2024. In 2026, the federal estate tax exemption will revert to pre-2018 amounts which will be roughly half the current amount. In addition, gifts to qualified charities are always tax-free. So, if you were planning to gift assets to your family or charity anyway, now may be a good time to do it — and bring down the size of your taxable estate.

• Special trusts: There are a number of trust arrangements that you can use to accomplish a variety of estate planning goals while reducing the size of your estate. For example, a Spousal Lifetime Access Trust (SLAT) allows the donor to make gifts to the SLAT using the lifetime gift exclusion. Upon the donor’s death, the beneficiary spouse receives net income and principal distributions; upon the death of the spouse, the secondary beneficiaries (usually the children and grandchildren) receive any remaining net income and principal. Other trusts can be structured to hold family business interests, insurance policies or a primary residence and remove these assets from the taxable estate.

If any of these strategies appeal to you, don’t wait!

One reason not to procrastinate is that estate planning is a complex process that takes time. Detailed estate plans can take 12 to 18 months to craft. Get started by getting an evaluation of your estate, if you don’t already have one. Make sure that you have or update basic estate planning documents such as wills, powers of attorney and health care proxies. Most importantly, you should contact a financial adviser to discuss your options well ahead of the Dec. 31, 2025, deadline. And remember to talk to a financial adviser, tax planner or estate attorney before taking any action that could have serious financial consequences.

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The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

Bruce Helmer and Peg Webb are financial advisers at Wealth Enhancement Group and co-hosts of “Your Money” on WCCO 830 AM on Sunday mornings. Email Bruce and Peg at yourmoney@wealthenhancement.com. Securities offered through LPL Financial, member FINRA/SIPC. Advisory services offered through Wealth Enhancement Advisory Services, LLC, a registered investment advisor. Wealth Enhancement Group and Wealth Enhancement Advisory Services are separate entities from LPL Financial.

 

Amy Lindgren

Now and then I like to write about random thoughts that are too small or personal to make into a column. Summer is a good time for small bits, so here are a couple of things currently on my mind.

Master’s degrees

Two Ramsey County commissioners recently proposed dropping the word “master” from its Master Gardener volunteer program to avoid confusion with the concept of slavery.

The program is affiliated with University of Minnesota Extension.

I recognize the good intent here, but my English-major self is flummoxed by the linguistic misunderstanding. Indeed, many words can have more than one meaning — a master who wields power over someone is a different word usage than a learner who has mastered a skill or concept. The first one, we don’t want. The second one, we do.

Questioning whether to use the word “master” is not new. For example, computer techs have mostly dropped the terms “master and slave” when describing primary computers and the interface terminals that serve them. Good. That was hurtful and unnecessary, especially with equivalent terms readily at hand.

But when it comes to dropping Master Gardener, it’s a problem. It’s also personal. I’m currently pursuing a Master’s degree and when I’m done, I do expect my diploma to say Master’s. That’s all I’m going to say about that.

My friend Norb Berg

A friend of mine died recently, although it would be a type of stolen valor to say we were close. We weren’t the kind of buds who swap stories over drinks or experience adventures together. He had those pals and the stories were epic. Norb Berg and I were more like esprit-de-corps friends, sharing a common mission to help others find work.

For one thing, we came from different generations, with completely different life stories. Norb had been: A prep school valedictorian, then an Army officer during the Korean War, then a scholar earning an advanced degree in Industrial Relations, then a family man raising four sons with his wife Marilyn, and then the first personnel director for Minnesota-based Control Data Corp. Thirty years my senior, Norb accomplished most of those things before I was born.

For those who don’t remember, Control Data became a global leader in supercomputers, but was still a fledgling corporation with fewer than 200 employees when Norb signed on in 1959. By the time he retired as second-in-command decades later, their workforce had rocketed to 60,000 employees, stationed all over the world. Norb had had a role, direct or indirect, in hiring each one of them.

Norb wasn’t shy about his achievements with Control Data, but I didn’t realize the full extent of his contributions until reading Mark Jensen’s book, “HR Pioneers” (North Star Press of St. Cloud, 2013).

According to Jensen’s research, Norb’s HR team literally changed the face of the American workplace. He’s credited with developing or co-developing multiple groundbreaking initiatives, including what’s believed to be the first version of an employee assistance plan. Their internal EAP, in fact, became globally recognized Ceridian, one of Control Data’s most successful spinoffs when the supercomputer business sunsetted here in the early ’90s.

In his retirement, Norb let his imagination fly, pouring energy into such disparate interests as creating a food bank and starting a red deer ranch — and sending emails to a local careers columnist. It didn’t take long for Norb to progress from being my correspondent to being a lunch partner, and then to the surprising role of patron.

In the last two decades of his long and generous life, Norb took on a very personal mission: To directly sponsor unemployed and under-employed workers for individualized career counseling. I never asked if he had other counselors in his extensive Rolodex, but I know he paid my small company to help everyone from school administrators and athletic coaches to sales reps and bankers to home health aides and even restaurant servers he had met randomly. It pleased him enormously to have a resource on offer whenever he met someone he wanted to help.

There are a lot of things I’m going to miss with Norb’s passing, not the least of which are the occasional lunches and ridiculous jokes he liked to tell. But the lesson I’m keeping is the ingenious double-dip benefit of his patronage scheme. Norb could have selected a polished placement firm for his referrals. He chose instead to provide a vital boost to a small, woman-owned business while simultaneously lifting up job seekers, one individual at a time.

Heck of a lesson, Norb, and one I won’t forget.

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Amy Lindgren owns a career consulting firm in St. Paul. She can be reached at alindgren@prototypecareerservice.com.

By Elaine S. Povich, Stateline.org

No state illustrates this year’s flurry of ballot measures to cut property taxes better than Colorado. There, the results of two likely voter questions could reduce funding for schools, roads, emergency responders and other local government services.

Colorado’s ballot measures are just two of nearly a dozen upcoming questions dealing with property taxes in states across the country, including in Arizona, Florida, Georgia, New Mexico, North Dakota, Virginia and Wyoming. While varying in scope, the measures all aim to reduce taxes for some or all property owners.

One Colorado question is already certified for the ballot, and another appears to have many more signatures than necessary to qualify. (A third Colorado property tax ballot question, which is less controversial than the others and has qualified for the ballot, would expand the amount of tax exclusion that can be claimed by disabled veterans.)

“Property taxes are a deeply unpopular, but a fairly efficient, tax,” said Jared Walczak, vice president of state projects at the Tax Foundation, a conservative tax analysis group that advocates for lower, more broadly based taxes. “So they have always pitted economists and policy wonks against ordinary homeowners who get very frustrated with their property taxes.”

Property taxes are generally assessed at the local level, and the money raised helps pay for schools, public safety, fire response and roads. The ballot measures being considered across the country could have significant effects on the money raised by those taxes — which could mean cuts in services or pressure on state lawmakers to make up the difference.

Local governments periodically assess the value of property and then set tax rates based on those assessments. Nationwide, home market values have increased about 50% since August 2019, according to Zillow, the real estate data company.

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“(Many homeowners) are paying dramatically more for the same property, and they don’t feel they are getting better government,” Walczak said. “That’s driving the discontent that is showing up in ballot measures and pressure on state lawmakers to provide relief.”

Experts say that because property taxes often are paid in a large lump a couple or so times a year — as opposed to income taxes or sales taxes, which are paid in dribbles — they tend to leave a bigger impression on taxpayers.

In Colorado, one ballot initiative would cap annual state property tax revenue growth from residential and commercial properties at 4%.

Another, which also is expected to qualify for November’s ballot, would cut residential and commercial property tax assessment rates. Since that reduction would bring in fewer dollars, that initiative, if passed, would require the state to reimburse local governments for the revenue losses — an expected $3 billion.

In May, the Colorado Legislature passed a bill to lower property assessment rates, in a hard-fought $1.3 billion compromise. The new law includes short-term assessment rate cuts and long-term structural changes to the property tax code, and it prioritizes school funding over other government services. The law also caps revenue growth from property taxes at 5.5%.

But conservative groups wanted more, and they worked to get stricter property tax limits onto November’s ballot.

“The bill that passed was a good start,” said Sean Duffy, spokesperson for Advance Colorado, a conservative advocacy group and main proponent of the initiatives.

“But many Republicans and many taxpayers and people around the state were thinking it would be really important to do a more significant and permanent cut,” Duffy said.

The other organization backing the referendums is Colorado Concern, a conservative group begun by Larry Mizel, who founded one of the nation’s largest homebuilding companies and has been a key fundraiser for former President Donald Trump.

Duffy said voters still have concerns about property taxes despite the Legislature’s action.

“Home values in Colorado have gone up like a hockey stick,” Duffy said, a trend mirrored in many other states. “It’s not, ‘I don’t want to pay for my schools or fire department,’ it was just a huge bucket of water in the face.”

But Colorado Democratic state Rep. Chris deGruy Kennedy, who co-sponsored the bill that became law, said the ballot initiatives would go too far.

He said the proposed 4% increase cap on property tax revenue wouldn’t allow for inflation or regional variation — or new construction, which tends to reduce individual property within a jurisdiction.

DeGruy Kennedy, who is term-limited, this summer became president of the Bell Policy Center, a left-leaning research and advocacy nonprofit that backs upward mobility for middle- and lower-income individuals.

Florida, too, has a ballot measure that could save homeowners money while cutting local tax revenues. The initiative would allow an annual inflation adjustment to the homestead exemption for people whose properties are their primary residence. It’s backed by a group of Republican legislators but opposed by the state’s League of Cities.

In Arizona, a property tax ballot measure has more to do with the hot-button issues of homelessness and vagrancy, said Ryan Byrne, managing editor of the ballot measure project at Ballotpedia, a nonprofit that tracks every candidate and referendum across the country.

If approved, the measure would allow property owners to apply for a property tax refund if the municipality does not enforce laws against illegal camping, loitering, panhandling, public urination, public consumption of alcohol and possession of illegal substances. It was referred to the ballot by the Legislature on split votes, with Republicans in favor and Democrats opposed. The League of Cities also opposes this measure.

In North Dakota, former Republican state Rep. Rick Becker is leading a referendum drive to eliminate property taxes altogether.

“Do you really own your property if the government can take it away?” he said, referring to cases in which people who don’t pay their taxes might have their homes foreclosed upon.

“In North Dakota, not unlike many other states, people hate property taxes,” he said. He argued the Legislature has lots of other pots of money from which to replace the revenue.

A nonpartisan legislative research agency estimated that ditching the property tax in North Dakota would cost the state $1.3 billion per year.

Georgia’s ballot measure would allow localities to create a homestead exemption for homeowners whose property is their primary residence.

New Mexico’s and Virginia’s measures would extend more property tax breaks to veterans.

Wyoming’s ballot initiative would set up a new class of property for taxation, putting owner-occupied dwellings in a separate category from rental property.

Stateline is part of States Newsroom, a national nonprofit news organization focused on state policy.

©2024 States Newsroom. Visit at stateline.org. Distributed by Tribune Content Agency, LLC.