Enacted on December 22, 2017, the Tax Cuts and Jobs Act ( TCJA) introduced a series of changes to the provisions of the U.S. Internal Revenue Code, affecting both individuals and corporations. Some of these provisions, however, are set to expire at the end of 2025, with potentially significant repercussions for U.S. taxpayers. Along with a broad and permanent cut in corporate taxes, the TCJA reduced individual income tax rates by “restructuring” the tax brackets, nearly doubled the standard deduction limit, from $13,000 to $24,000, and has literally doubled the estate and gift tax exemption, raising it from $5.6 million to the current $11.2 million. As mentioned, however, these changes are set to expire on December 31, 2025, at which point rates will revert to the levels in effect prior to the TCJA’s enactment.

What, then, might be the impact of such a change on the net worth of each U.S. taxpayer? Let’s analyze the individual provisions in detail, seeking to highlight possible countermeasures.

Estate and Gift Taxes

Currently, both individual taxpayers and married couples have the right to transfer—either during their lifetime or as part of their estate—up to a maximum of $12.9 million and $25.8 million, respectively, without incurring federal estate or gift tax. However, unless specific legislative action is taken in the near future, the above exemptions will be reduced by half, effective in 2026. Consequently, for those whose estate exceeds this value, it may be advisable to consider estate planning that includes the following:

• ​annual cash gifts. You may make gifts of up to $17,000 per year (for married couples filing a joint return, the limit is $34,000) to as many recipients as you wish. These cash gifts are tax-free and do not count toward the calculation of the exemption. For large families, this approach can offer the advantage of transferring significant assets to the next generation.
• 529 savings plan under Section 529 of the Internal Revenue Code. Current tax laws allow you to increase annual cash gifts made to children and grandchildren (as well as friends and relatives) to cover future educational expenses for up to a maximum of 5 years. In other words, it is possible to donate up to $85,000 in a single year ($170,000 for married couples) to each recipient. Ultimately, this is an excellent way to provide financial assistance to those who will face the costs of college, by depositing these funds into a tax-advantaged account while simultaneously reducing your taxable income.
  
• “Dynasty trusts.” If a substantial portion of the estate—not subject to estate and gift taxes—remains available, it may be worth establishing a “dynasty trust.” This is, in fact, a tool that allows you to provide for the needs of multiple future generations for as long as state law—which governs the trust—permits its existence. Any future income derived from the trust, as well as any increase in its value, can be transferred among future generations without triggering estate or gift taxes.
  
• Irrevocable life insurance trusts (ILITs). Purchasing a “survivorship policy” (a single life insurance policy that covers two individuals—usually husband and wife, and which pays out the benefits only upon the death of both insured individuals) and naming an irrevocable life insurance policy trust as the beneficiary is one of the most commonly used methods to “remove” assets and capital from the estate subject to state and federal estate taxes. Furthermore, it is worth noting that the death benefit paid to the beneficiaries is not subject to taxation.
  
  

Income and Capital Gains Taxes

Since, as we mentioned earlier, tax rates are expected to return to the levels in effect before the TCJA took effect (the top rate, for example, will rise to 39.6% from the current 37%), many of the wealthiest taxpayers can expect a significant increase in their tax rates. In light of all this, it may be advisable to consider ways to increase one’s income, where and when possible, over the next two years to take advantage of the current lower tax rates, such as:

• ​rolling over funds from a traditional IRA to a Roth IRA. Bothtraditional IRAs and Roth IRAs are individualretirement accounts that can be opened at numerous financial institutions; however, they are subject to different regulations and offer distinct benefits that set them apart from one another. The regulations governing traditional IRAs, for example, require the account holder to withdraw a certain minimum amount annually once they reach the age of 73. Any “withdrawal”—whether of the deposited principal or the related earnings—is subject to taxation. Withdrawals made before reaching the age of 59 and a half also incur a 10% penalty. As for the Roth IRA, however, the relevant regulations do not impose any age limit for withdrawing the funds accumulated in the retirement account. Withdrawals of deposited funds may also be made at any time and for any reason, without incurring any penalty or tax. Withdrawals of any earnings are also tax-free and not subject to a penalty, provided that at least 5 years have passed since the first deposit. Finally, withdrawals made before reaching the age of 59 and a half are subject to taxation and a 10% penalty. By rolling over from a traditional IRA to a Roth IRA before 2026, you therefore have the advantage of paying the income tax due in advance (most likely at a lower rate) rather than paying it when you actually withdraw the accumulated funds.
• Capital gains strategy. If it is reasonable to expect an increase in capital gains tax rates in the near future, it may be worth considering selling some of your best-performing securities before the TCJA expires. Although the sale will inevitably result in a capital gain, in any case, it will be a capital gain that, in all likelihood, will be lower than the one that could have been realized by waiting a longer period, and consequently, the related tax liability will also be lower. Furthermore, since the rule known as the “wash sale rule” applies only to losses realized from the sale and subsequent repurchase of the same securities within 30 days—and not to gains realized from such a sale— one might consider repurchasing the same securities at their current, higher market value in order to reduce future gains while still maintaining the investment.