Tax practitioners face unprecedented challenges as they approach the end of 2024, and political uncertainty, potential tax reforms, and legislative expirations complicate tax planning for clients.

In a recent Federal Tax Updates podcast, Roger Harris, EA and President of Padgett Business Services, and Annie Schwab, CPA and Franchisee Operations Manager at Padgett, discussed the complexities ahead. Roger said, “Normally, after the October 15th deadline, we turn straight into our normal routine of looking ahead and doing tax planning. But we’ve got a lot of other stuff to consider and to plan for between now and the end of the year.”

The Challenges of Tax Planning for 2024

Several factors make tax planning particularly challenging this year.

Political Uncertainty and the Upcoming Election

The 2024 election introduces significant unpredictability as candidates propose various tax policies. Roger noted, “We’ve heard tax proposals from a $25,000 credit to buy a house to tax-free tips, no tax on Social Security, no tax on overtime, and increased child tax credits, and all of that’s in the context of an election and the expiration of the Tax Cuts and Jobs Act at the end of 2025.”

These proposals appeal to voters but make it difficult for tax professionals to advise clients on long-term strategies. Annie agreed, “We’re used to planning by bunching expenses or shifting income from one year to the next depending on what’s more advantageous, but this year, it really is like, what is the law going to be?”

The Looming Expiration or the Tax Cuts and Jobs Act

The possibility of significant tax reform adds another layer of complexity. The scheduled sunset of the Tax Cuts and Jobs Act (TCJA) at the end of 2025 means many current tax provisions could expire or change. Roger emphasized, “We don’t know. Typically, when we do year-end planning, we have some predictability in what the law is going to be.”

The TCJA’s expiration could lead to higher individual tax rates and changes to deductions in 2026, but if political control shifts, these changes could happen sooner. Roger explained, “If one party were to win the White House, the House, and the Senate, there’s no guarantee the Tax Cuts and Jobs Act could make it to the end of 2025. They could stop it immediately or make changes mid-year.”

Retroactive tax changes affecting the 2024 tax year are also possible. This uncertainty makes proactive planning challenging.

Understanding Potential Tax Law Changes

Despite the uncertainty, tax practitioners must stay informed about proposed tax policies and assess their feasibility. Roger questioned some proposals: “I’m not making a political stance here—I’m trying to be neutral. But some of the stuff I hear, it’s like, come on, how are you going to do all this tax-free this and that? At some point, we’re going to go broke as a country if we don’t collect enough tax revenue.”

Given the uncertainties, tax professionals need to develop flexible, scenario-based planning strategies.

Annie recommended starting with the facts we have now and keeping an eye on the news as proposals change. “If you’re trying to plan, get your facts straight that this is where we go if nothing happens,” Annie said. “Then follow along in the news. Child tax credits, R&D, state and local tax (SALT) deductions, and capital gains rates are the big rocks that can help with tax planning, but to know exactly what’s going to happen is impossible.”

Roger advised, “We have to have good, honest discussions with our clients that we can only plan based on what we know.”

Key Tax Provisions at Risk

Roger and Annie also discussed some of the key aspects of the tax code that could change in the coming year with the expiration of the Tax Cuts and Jobs Act.

SALT Deduction Cap

The $10,000 cap on the SALT deduction is a contentious issue, especially in high-tax states. Roger noted, “If you live in New York or California, you weren’t thrilled about the cap because that wouldn’t cover the property taxes on a small house in either of those states.”

Individual Tax Rates

If the TCJA sunsets, individual tax rates could increase. Annie explained, “Right now, our lowest rate is 10% and our highest rate is 37%. If the Tax Cuts and Jobs Act sunsets, the top rate would go back up to 39.6%.”

Standard Deduction and Personal Exemptions

Changes to the standard deduction and personal exemptions could impact taxpayers’ decisions to itemize deductions.

“Remember, the standard deduction doubled, and it’s scheduled to go back to half of the current deduction amount,” Annie said. “Would they bring back the personal exemption? And how much would that be? Because we’re talking about numbers from 2017, so if you look at inflation adjustments, what does that actually mean in tomorrow’s dollar?”

Qualified Business Income (QBI) Deduction

The QBI deduction under Section 199A is politically divisive. Roger mentioned, “Republicans say businesses can’t do without it. Democrats say it’s a gift to the rich.”

Tax incentives never occur in a bubble, so tax professionals need to consider what taxpayers would get in exchange if lawmakers repealed Section 199A.

“If you don’t give them anything and just repeal it, yes, that will be a huge tax increase on most small businesses. But if you’re going to take it away and cut their tax rate in half, I don’t know how they feel about it. Until I see the entire picture, I don’t have an opinion on one piece of tax law,” Roger said.

An Uncertain Landscape for the Coming Tax Season

The tax landscape for the coming tax season and beyond is uncertain. Political shifts, potential tax law changes, and the expiration of the TCJA require tax practitioners to be adaptable and proactive. But by staying informed, communicating openly with clients, and preparing for multiple scenarios, professionals can help clients navigate these challenges.

For a deeper look into these issues, listen to the full Federal Tax Updates episode featuring Roger Harris and Annie Schwab.