The Tax Cuts and Jobs Act: How to Plan for Potential Change

It is impossible to predict the future, but smart advisors and their clients can plan for a range of outcomes. Proper advanced planning will be key for philanthropists in the year ahead with the potential sunsetting of the Tax Cuts and Jobs Act (TCJA) of 2017. Unless Congress acts, most provisions are slated to expire at the end of 2025. This may have a significant impact on your clients and their philanthropic goals.

Changes to existing tax policies could mean higher tax rates for some, a significant estate and gift tax exemption reduction and lower limits to the charitable contribution deductions. Control of the White House and Congress may be a major deciding factor, and advisors and donors should make it a priority to discuss charitable giving options proactively moving forward. Now is an opportune time for strategizing what their philanthropic portfolio can look like.

Here are three helpful tips, actionable steps and important reminders advisors can refer to and access throughout this time frame.

Provide Guidance

While we have yet to determine what the post-2025 landscape will look like, advisors know what is achievable for their clients here and now. Advisors are an asset for any donor with questions or concerns about the “What if” and “What’s next” at the conclusion of TCJA, particularly when reassessing their charitable giving goals and options within the current tax policies.

Advisors can work with clients with the understanding that there may be shifts in the future and how these changes may affect planning. Some key points for advisors should include:

Donate Assets with a Low Cost Basis: Donating assets like interests in privately-owned businesses, real estate or appreciated securities directly to charity can be a smart move. Usually, selling these assets triggers capital gains tax, but donating them can eliminate that tax and allow for a deduction based on the asset’s fair market value. Should the capital gains tax rate increase after 2025, this strategy could become even more advantageous.

Estate and Gift Tax Exemption: TCJA significantly increased the estate and gift tax exemption, but if it sunsets in 2025, the exemption could revert to 2017 levels, adjusted for inflation. In 2024, the exemption is $13.61 million for individuals and $27.22 million for couples. After 2025, experts expect this to decrease to around $7 million per individual and $14 million per couple. However, assets left to charity qualify for an estate tax charitable deduction, which will reduce estate taxes.

Charitable Deduction for Cash Contributions: TCJA also raised the limit for cash contributions to public charities from 50% to 60% of adjusted gross income (AGI). If TCJA expires, this limit may revert to 50%. High-income donors who strategically space out large gifts may want to take advantage of the current higher limits before they change.

Be a Champion for Philanthropy

During periods of uncertainty, even the most devoted philanthropists can take a step back when it comes to the economic markets. Conversely, the immediate impact of tax increases can sometimes lead to an increase in charitable giving. It’s important to remind goal-oriented donors that even in uncertain times, they can still be the catalyst for change and their philanthropic dollars can go even further when organizations need them the most.

Harness the Power of Donor-Advised Funds

Donor-advised funds (DAFs) are versatile giving vehicles for individual donors. Annual gifts to a DAF will give donors a charitable deduction each year to add to their other itemized deductions. Another ongoing benefit of DAFs is that the vehicles can be named as the beneficiary of an estate or other testamentary vehicle. For all these reasons and more, advisors should remind their clients of the stability that comes with DAFs, even in uncertain times.