As the provisions of the 2017 Tax Cuts and Jobs Act (TCJA) are set to expire at the end of next year, tax planning this year echoes the uncertainty of 2010, when the Bush-era tax cuts were nearing their scheduled expiration. “What I learned back then, and I’m still applying it now, is being very careful to leave flexibility in year-end tax decisions,” says Jim Holtzman, CEO of Legend Financial Advisors in Pittsburgh. The experience from over a decade ago serves as a reminder: much of the Bush-era tax legislation ultimately remained in place, even after its expiration.

This year’s tax planning is complicated further by the upcoming presidential election. The election outcome will have a significant impact on the future of the tax code, meaning that any tax strategies implemented now could prove disadvantageous if the law changes in unexpected ways. “Whatever strategy you implemented could hurt the client,” warns Holtzman.

For advisors, it’s crucial to model potential outcomes under both the current tax rules and those that could take effect if the TCJA sunsets. Sharif Muhammad, a partner at JMG CPAs LLC in Somerville, N.J., suggests showing clients projections under both scenarios. “It helps the client see how the landscape changes if tax rules change,” he explains.

Andrew Christakos, a CPA and wealth advisor at Christakos Financial in Cranford, N.J., shares a similar approach. “We can’t predict the future, so we have to work with the data that we have right now,” he says. “Then we work with the client to decide what is best for them.”

One area where clients may want to act now is retirement account distributions. If the TCJA expires and tax rates revert to their pre-2017 levels, many clients could face higher rates. Advisors are recommending that clients accelerate distributions from traditional retirement accounts, including inherited IRAs, and use the funds to pursue capital gains in taxable accounts, potentially locking in lower rates before the law changes.

The Appeal of Roth Conversions

The looming prospect of higher tax rates has also made Roth IRA conversions more attractive, both this year and next. Christopher Fundora, director of retirement planning at Traphagen CPAs & Wealth Advisors in Oradell, N.J., explains that converting funds to a Roth IRA now could result in a lower tax rate compared to waiting to withdraw from a traditional IRA later. Roth conversions can also provide significant estate planning advantages. Under new IRS regulations issued in July, heirs inheriting Roth IRAs can benefit from tax-free growth for up to 10 years.

However, Roth conversions come with some caveats. They can trigger state and local taxes, and clients should be mindful of potential impacts on their future Medicare premiums. People with higher incomes may be subject to the income-related monthly adjustment amount (IRMAA), which increases Medicare premiums based on income. A Roth conversion could push a client’s taxable income into a higher bracket, making them subject to these additional costs.

Advisors may also suggest delaying a conversion if a client plans to move to a state with no income tax, such as Florida, Texas, or Wyoming. “Maybe you wait until they’ve established residency there and then do the conversion to save state taxes,” Fundora advises.

Preparing for Changes to Deductions and Estate Taxes

If the TCJA sunsets, the standard deduction would be cut roughly in half, potentially leaving clients with fewer opportunities for deductions. For example, the standard deduction for joint filers would drop to about $14,600 from $29,200 in 2024. However, the expiration of the TCJA could also make it easier to itemize deductions, creating new opportunities for tax planning.

Steven Warren, senior manager at Schechter Dokken Kanter CPAs in Minneapolis, suggests that clients with donor-advised funds consider pushing charitable donations to 2026. While donations made this year may not generate deductions for clients who aren’t itemizing, if the law changes, the lowered standard deduction could make itemizing more advantageous. “Clients could replenish their donor-advised fund or donate directly to charities after the law change to benefit from a charitable deduction,” Warren advises.

The expiration of the TCJA also has significant implications for estate taxes. The estate tax exemption would be reduced by approximately 50%, from $13.61 million per person to around $6.8 million. In addition, Vice President Kamala Harris has supported lowering the exemption further, potentially down to $3.5 million, and raising estate tax rates to 55% or higher.

While we’ve seen similar fears in the past—such as when the Bush-era tax cuts were set to expire—some clients made gifts in anticipation of estate tax changes, only to find they had parted with assets they needed. Nevertheless, Warren recommends that clients who may be affected by a reduced estate tax exemption begin planning now. “I encourage them to sit down with their estate planning attorney who really specializes in this. And if they don’t have one, I encourage them to get one.” he says.

Don’t Forget Estimated Taxes

Taxpayers with significant interest income should be making quarterly estimated tax payments. “Some people aren’t withholding from their Social Security the way they should,” says Jeremy Keil of Keil Financial Partners in New Berlin, Wis. “It’s a foreign concept to many.” Keil points out that Social Security recipients must proactively request withholding from their benefits, either by calling the Social Security Administration or submitting Form W-4V.

Advisors should encourage clients to address any payment deficiencies as soon as possible. Adjusting withholding from Social Security, pensions, or paycheck distributions for the remainder of the year can help clients catch up on quarterly taxes and reduce penalties. “That will help reduce penalties,” Keil advises.

As the end of the year approaches, tax planning is more critical than ever. By staying flexible, modeling various tax scenarios, and considering the potential impact of future tax law changes, advisors can help clients navigate this uncertain period with confidence.