How to Manage Your Finances Before Tax Cuts Expire
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What is the main topic discussed in this episode?
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What are the 2017 tax cuts that are set to expire in 2025?
Here's your money briefing for Thursday, October 12th. I'm J.R. Whelan for The Wall Street Journal. A sweeping set of tax cuts passed in 2017 gave consumers so much needed relief. But those cuts are scheduled to expire in 2025.
Everybody's probably going to see their tax rate go up a little bit. And then how that impacts you is going to depend on how you do your standard deductions, whether or not you give to charity, how much is going into your retirement savings.
We'll talk to Wall Street Journal contributor Bailey McCann after the break.
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Trump-era tax cuts are set to expire in 2025. Financial experts say making certain moves now can protect your finances and ease your tax liability. Wall Street Journal contributor Bailey McCann joins me.
How would income tax brackets change if the 2017 cuts lapse?
So first of all, Bailey, what are some of the prominent features of the tax cuts that went into effect in 2017 that are set to expire?
So the tax cuts did a lot of things. Everybody had their tax rates lowered, and the standard deduction was also almost doubled, which can help with your income tax and get a bit of a higher rebate there. It also raised the state tax exemption so that you can have a bigger estate before you reach the threshold of taxes.
If the tax cuts aren't renewed, what will happen to income tax brackets?
So those are going to revert to where they were in 2016, which is higher. The highest tax bracket right now is 37%. The reversion would bring it to 39.6%.
Who would be the most impacted by that? And what can they do now to get ahead of those changes?
So anybody who has larger account balances, wealthier people, but also people at or near retirement who have been saving, those bigger accounts are going to be impacted by tax increase.
Now, you mentioned people with large amounts of savings.
Who will be most impacted by higher tax rates and why?
What about the rest of us?
Everybody's probably going to see their tax rate go up a little bit. And then how that impacts you is going to depend on how you do your standard deductions, whether or not you give to charity, how much is going into your retirement savings. So there is a little bit of an individualized component to it.
What can people with retirement savings do to sort of get ahead of the game here and put themselves in a good position?
The main thing to do is consider what your entire financial picture looks like. A lot of people don't realize that they are actually worth more than they might intuitively feel like because we've had inflation. We have higher interest rates. That means certain accounts are going to be appreciating at a higher rate. Certain assets are going to be appreciating at a higher rate. So it's really worth it to take some time and look at what your total is. net worth slash financial picture is right now. And then you can start making some decisions about how to optimize that, whether that's through doing charitable donations, gift giving, maybe you're doing a Roth IRA conversion. There are different things that you can do to sort of make sure that you're not paying more than you need to.
Refresh us for a moment. What does a Roth IRA allow savers to do?
So if you convert some of your retirement savings or all of it to a Roth IRA, what you're doing is sort of pre-paying the taxes in a lump sum.
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Chapters
8 chapters
1
What is the main topic discussed in this episode?
0:00–0:33
2
What are the 2017 tax cuts that are set to expire in 2025?
0:33–1:59
3
How would income tax brackets change if the 2017 cuts lapse?
1:59–3:02
4
Who will be most impacted by higher tax rates and why?
3:02–4:55
5
How can retirees and savers use Roth conversions to prepare?
4:55–7:35
6
What should people consider when using charitable giving to reduce taxes?
7:35–8:29
7
How could estate-tax exemptions change and what planning steps help?
8:29–8:52
8
Are these tax cuts likely to be extended or should you plan for them expiring?
8:52–9:16
Speakers
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