The Tax Cuts and Jobs Act (TCJA), signed into law in December 2017, brought significant changes to the U.S. tax code, benefiting both individuals and businesses. However, many of its provisions are set to expire at the end of 2025, potentially increasing tax liabilities for millions of Americans. With this looming deadline, proactive tax planning is more crucial than ever.

If you want to maximize deductions, minimize liabilities, and prepare for the shifting tax landscape, the time to act is now. This article will provide an overview of the TCJA and its effects on the tax code, as well as practical tax planning assistance to minimize your tax burden.

Understanding the Tax Cuts and Jobs Act (TCJA)

Before diving into specific tax planning assistance and strategy, it’s important to understand what the TCJA changed and what its expiration could mean for taxpayers. Some of the most significant provisions include the following:

• Lower Income Tax Rates: The TCJA reduced individual income tax rates, with the top rate dropping from 39.6% to 37%.
• Higher Standard Deduction: The standard deduction nearly doubled, reducing the number of taxpayers who itemized deductions.
• State and Local Tax (SALT) Deduction Cap: The act capped deductions for state and local taxes at $10,000, which had significant implications for taxpayers in high-tax states.
• Increased Child Tax Credit: The child tax credit was expanded from $1,000 to $2,000 per child.
• Changes to Business Taxation: Corporate tax rates were cut from 35% to 21%, and a 20% pass-through deduction was introduced for qualifying business income.

Many of these provisions are set to sunset at the end of 2025, meaning tax rates could rise, deductions could shrink, and taxpayers may see higher overall tax bills.

Why Tax Planning Is Essential Before the TCJA Expires

1. Lock in Lower Tax Rates

With the expiration of the TCJA, individual tax rates may revert to pre-2018 levels, meaning higher taxes for many households. By strategically managing income, deductions, and investments now, you can take advantage of current lower rates.

2. Maximize Available Deductions

Certain deductions, such as the 20% pass-through deduction for small businesses, may disappear. If you own a business, work with an independent financial advisor to optimize your income and expenses. Seeking tax planning assistance now could help you retain more of your earnings before these benefits expire.

3. Roth Conversions and Retirement Planning

With today’s lower tax rates, it may make sense to convert traditional IRA funds into Roth IRAs. This move allows you to pay taxes at today’s rates and enjoy tax-free withdrawals in retirement when rates may be higher.

4. Estate and Gift Tax Considerations

The TCJA doubled the estate and gift tax exemption, currently over $12 million per person. If the exemption drops back to pre-2018 levels (around $5 million), more estates will be subject to federal taxation. Wealthy individuals should consider gifting or setting up trusts before the exemption decreases.

5. Managing the SALT Deduction Cap

For those in high-tax states, the $10,000 cap on SALT deductions has been a burden. If Congress does not extend this provision, strategies such as bunching deductions or shifting income to more favorable tax years could be useful.

Tax Planning for Charleston, SC, Residents

Many of our clients are from the Charleston area, where seasonal economic conditions, real estate values, and state taxes play a significant role in their strategic financial planning. The expiration of the TCJA brings additional considerations specific to our community, and tax planning in Charleston, SC, should account for the following factors:

The Impact of the TCJA Expiration on Charleston Residents

• Higher Federal Tax Rates: Many Charleston residents benefited from the TCJA’s lower tax brackets. If the act expires, higher federal tax rates may significantly impact middle- and upper-income households in the region.
• Restoration of Pre-TCJA Standard Deduction: The nearly doubled standard deduction may revert to previous levels, increasing taxable income for those who do not itemize.
• Elimination of the 20% Pass-Through Deduction: Charleston’s growing small business sector, particularly in tourism, hospitality, and technology, could see increased tax burdens if the Qualified Business Income Deduction disappears.
• Increased Estate Tax Liability: With Charleston’s high-value real estate market, more property owners may be subject to federal estate taxes if the exemption shrinks.

Strategic Tax Planning for Charleston, SC, Residents Before 2026

1. Maximize Business Deductions

Charleston business owners should work with an independent financial advisor to ensure they maximize the 20% pass-through deduction before it disappears. S corporations, LLCs, and sole proprietors should consider income-shifting strategies to lock in the benefit.

2. Utilize Real Estate Tax Planning

Tax planning in Charleston, SC, must account for the ebbs and flows of the local market. Fortunately, Charleston’s booming real estate market presents opportunities for tax planning:

• 1031 Exchanges: Investors can defer capital gains taxes on real estate sales by reinvesting proceeds into other properties.
• Homestead Exemption: Primary homeowners should ensure they claim this benefit to reduce property tax liabilities.

3. Plan for State and Local Taxes (SALT)

Charleston residents with high property taxes or significant state income tax liabilities should evaluate whether bunching deductions or making pre-2026 estimated tax payments can help mitigate the $10,000 SALT cap’s impact.

4. Optimize Retirement Planning

With the potential for higher future tax rates, Charleston residents should consider the following:

• Roth Conversions: Paying taxes at today’s lower rates rather than higher future rates.
• Maximizing Pre-Tax Contributions: Contributing to 401(k) plans and HSAs before potential legislative changes. 

5. Charitable Giving Strategies

Charitable deductions could become more valuable in a post-TCJA world. Charleston philanthropists should consider donor-advised funds or front-loading contributions before the current tax benefits expire.

Steps to Take Now

1. Work with a Tax Professional

Tax laws are complex and constantly changing. Consulting a tax professional who understands the nuances of both federal and South Carolina tax laws can help you implement the best strategies.

2. Review Your Investments

Ensure your investment portfolio is tax-efficient, considering factors like capital gains harvesting, tax-loss harvesting, and municipal bonds.

3. Plan Charitable Contributions

If you itemize deductions, consider donor-advised funds or bunching charitable contributions into high-income years to maximize tax savings.

4. Adjust Your Estate Plan

If you have significant assets, work with an estate planner to take advantage of the current estate tax exemption before it reverts to a lower threshold.

5. Consider Accelerating Income and Deductions

If you anticipate higher tax rates post-2025, accelerating income into 2024 or 2025 while rates are lower could be beneficial. Similarly, deferring deductions to higher-tax years could enhance their impact.

Tax Planning Before the Tax Cuts and Jobs Act Disappears

With the expiration of the Tax Cuts and Jobs Act approaching, proactive tax planning is essential to avoid unexpected tax increases. Whether you’re a retiree, a small business owner, or an investor, seeking tax planning assistance now can help safeguard your financial future.

Tax planning for Charleston, SC, businesses and residents involves an intimate knowledge of local tax laws and economic conditions. By working with an independent financial advisor now, you can position yourself for financial success, even in the face of change..

If you haven’t yet reviewed your tax plan in light of the TCJA’s expiration, now is the time. Don’t wait until the end of 2025 – act today to secure your financial future! 

Morris Financial Concepts is an independent investment advisor registered under the Investment Advisors Act of 1940, as amended. Registration does not imply a certain level of skill or training. More information about Morris Financial Concepts, including our investment strategies, fees, and objectives, can be found in our ADV Part 2, which is available upon request.

Morris Financial Concepts does not provide tax preparation services. Morris Financial Concepts’ sister company, Morris Tax Planning, should instead be consulted for tax preparation services.