As the election approaches, retirees and prospective retirees should consider potential impacts on their retirement planning, particularly concerning taxes and Social Security benefits. Regardless of political outcomes, the sunsetting provisions of the Trump administration’s Tax Cuts and Jobs Act pose significant challenges by January 1, 2026. Key concerns include:
- Income Taxes: Higher-income individuals may face increased taxes, with the top rate potentially rising from 37% to 39.6%. Reductions in the standard deduction could lead to higher overall income taxes.
- Business Taxes: Many closely held businesses might see tax increases as the 20% qualified business income deduction expires, particularly affecting partnerships, LLCs, and S Corps.
- Estate Taxes: The estate tax exemption, currently at $13.61 million, could be halved, subjecting more estates to the 40% estate tax.
Depending on election outcomes:
- Blue Sweep: A Democratic victory could lead to tax increases for higher incomes and reforms to estate taxes, potentially reducing exemptions and tax-saving strategies.
- Red Wave: Republicans may push to extend Tax Cuts and Jobs Act provisions, although major tax cuts are unlikely due to federal debt concerns. Minor adjustments, such as lowering estate taxes on family businesses, may be considered.
- Divided Government: Inaction may result in automatic sunset provisions, increasing taxes. Compromises could extend some tax benefits while allowing others to expire.
Regarding Social Security:
- Trust Fund Depletion: The Social Security Trustees Report projects depletion by 2035, necessitating reforms. Options include raising the full retirement age, increasing employment taxes, adjusting the wage cap for Social Security taxes, or taxing benefits more heavily.
Retirees should prepare by incorporating potential tax increases and Social Security changes into their financial plans. Monitoring election results and subsequent legislative actions will be crucial for adjusting retirement strategies to ensure financial stability in the face of evolving tax and benefit landscapes.
Original article from Forbes to learn more: Click Here
