Tax planning for investors and executives in 2025

Income taxes

Your tax planning should start with understanding the basic rules for income tax rates and deductions. Some of the simplest strategies about when you recognize income and deductions can profoundly affect when and how much you pay.

First, your rates. Different types of income are taxed differently. Ordinary income includes items like salary and bonuses, self-employment and pass-through business income and retirement plan distributions. Certain types of investment income — like rents, royalties and interest — are also taxed as ordinary income, while qualified dividends and long-term capital gains are taxed at preferential rates.

The top rate on ordinary income is 37%, while the top rate on long-term capital gains and qualifying dividends is 20%, not including employment taxes and taxes on net investment income, discussed later. Just as important as rates are the many benefits, deductions, and exclusions offered by the tax code. We’ve included a table with the 2024 and 2025 figures for many important tax rules and benefits.

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Coming changes

Tax rates are scheduled to change at the end of 2025 when much of the Tax Cuts and Jobs Act (TCJA) is set to expire. Many exclusions and deductions that were adjusted under the TCJA are also scheduled to change. The results of the election make it more likely much of the TCJA will be extended, but Republicans will have difficult choices to make between priorities and there is no guarantee that everything is extended in its current form. Below is a list of individual tax provisions scheduled to expire beginning in 2026.

Expiring tax cuts:

• Section 199A pass-through deduction
• Rate cuts and bracket changes across the brackets
• Increased alternative minimum tax (AMT) exemption and phaseout threshold
• Doubled estate and gift tax exemption
• Increased standard deduction
• Increased deduction limit for cash contributions to public charities
• Repeal of Pease phaseout of itemized deductions
• Child tax credit changes and enhancements
• ACA premium tax credit enhancements
• Exclusion for student loan forgiveness and employer reimbursement
• Exclusion for mortgage debt forgiveness
• ABLE account enhancements

Expiring tax increases:

• Cap on the SALT deduction
• Repeal of personal exemptions
• Repeal of miscellaneous itemized deductions
• Limits on mortgage deduction
• Repeal of home equity deduction
• Limits on personal casualty losses
• Section 461(l) loss limitation (expires in 2028)
• Repeal of moving expense deduction
• Repeal of moving expense reimbursement exclusion
• Repeal of bike commuting exclusion fringe
• Limits on deducting gambling losses

The expiration of the TCJA would have a profound effect on the tax planning for investors, business owners, and executives. The top individual rate on ordinary income would return to 39.6%. The loss of the Section 199A deduction for certain pass-through business income would compound the problem, with the top effective rate on qualifying income flowing from S corporations and partnerships rising from 29.6% to 39.6%. In addition, millions more individual taxpayers would also be subject to the alternative minimum tax.

The expiration of the TCJA would not be without benefits for taxpayers. The SALT cap would disappear along with limits or repeals of many other deductions. But for most taxpayers, the net result would be a significant tax increase.

Republicans are already signaling they intend to prevent these tax increases from taking place as scheduled. The problem is the cost. Government scorekeepers estimate that extending the TCJA in full would increase deficits by $4.6 trillion over 10 years, and that doesn’t include any of the new tax cut promises that president-elect Donald Trump made on the campaign trail. Ending the SALT cap and cutting taxes on overtime pay, tips, Social Security, along with other tax cuts, could increase the cost to somewhere between $8 trillion to $10 trillion, or more.

Republicans will look for other savings or revenue sources, but will likely be faced to make tough choices between tax priorities to keep the costs down. There may be aspects of the TCJA that are allowed to expire, or provisions that are changed or adjusted by Congress. Pay attention to the provisions that may have less sympathetic constituencies, like estate and gift tax lifetime exclusions.

Any TCJA changes are likely to happen between 2025 and 2026. For 2024, tax planning should follow a more traditional path. That means deferral. The idea is to delay recognizing income while accelerating deductions. There are many items for which you may be able to control timing.

• Income
  • Consulting income
  • Self-employment income
  • Real estate sales
  • Gain on stock sales
  • Other property sales
  • Retirement plan distributions
• Expenses
  • Losses on sales of stock and other investment property
  • Mortgage interest
  • Margin interest
  • Charitable contributions

But be careful, certain circumstances may affect your strategy. You may want to delay an itemized deduction to bunch it with future expenses, or your tax planning may be affected by the AMT. There are also limits on deducting prepaid expenses. You will likely benefit from multi-year tax planning. Special consideration should be given to state taxes and charitable giving because of the limit on state tax deductions and the IRS scrutiny of charitable deductions.

SALT deduction

The $10,000 SALT cap deserves special attention. If can be painful for successful investors, business owners and executives, particularly in years with transactions that can generate significant gain.

The possibility of the SALT cap disappearing in 2026 could turn tax planning on its head. Instead of accelerating SALT deductions, it could make sense to defer them for when they may no longer be limited. This could include postponing tax payments when allowed, or even postponing transactions or that will give rise to significant income that will be subject to big state tax bills. It may even make sense to defer paying state taxes in 2024 that can be paid 2025 in case Republicans proactively repeal the SALT cap a year early. Be careful with this tax planning, as adjusting the timing of transactions can have economic consequences.

In the meantime, owners of pass-through entities have a unique opportunity to obtain relief from the cap with the help of the business entity. To date, 37 states have enacted regimes that allow pass-through businesses to deduct SALT taxes at the entity level in exchange for a credit or exemption from state tax on the pass-through income of owners. This allows a partnership or S corporation to fully deduct state taxes against entity-level business income, rather than having owners pay taxes themselves and take a limited SALT deduction at the individual level. It can be especially powerful in years where there is a transaction that causes significant state taxation on capital gains.

The explosion in state pass-through entity (PTE) tax regimes over the last two years came partly in response to IRS guidance (Notice 2020-75) confirming the viability of the entity-level deductions. Although these regimes can offer significant benefits to owners, there are potential drawbacks. Whether electing into a PTE tax ultimately makes sense is a complex determination that depends on a variety of factors that involve both federal income tax rules as well as state tax rules.

The lack of uniformity among state laws presents particular challenges. State rules vary on when taxpayers can make an election to shift tax to the entity level. The timing of an entity-level deduction may depend both on when the election is made and when the entity makes payments for the tax. State laws also vary (and are not always clear) on whether PTE taxes paid in one state are creditable against other PTE regimes or personal income tax liability in other states.

It’s also important to understand that PTE tax elections may benefit certain owners more than others, particularly for partnerships operating across many states or with partners residing in different states. Partnerships should weigh the burdens of paying the entity-level tax against the benefits of passing the entity-level deduction to partners, and also consider whether the partnership agreement will permit any necessary adjustments to allocations or distributions. States are still updating their laws to address technical considerations. You should carefully analyze the most current state laws and fully assess the potential implications. The adoption of a PTE tax system may reduce the potential AMT exposure for owners.

Charitable deductions

Most people donate to charity for all the right reasons, but that doesn’t mean you should ignore the tax benefits. Intentional planning can make charitable giving even more valuable for tax purposes, freeing up funds for additional giving or passing wealth onto loved ones. It’s important to understand key limits on charitable deductions. Taxpayers should also be aware that the IRS is stepping up its scrutiny of this area.  

Limits

Charitable deductions are generally limited to a percentage of adjusted gross income, with any excess carried over for the next five years. The percentage limitation can be quite complex, and depends both on whether the gift is cash or property and the type of charitable organization that receives the gift. The table below illustrates the general adjusted gross income (AGI) limits by donation and the type of charity.

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Outright gifts of cash (which include gifts made by check, credit card or payroll deductions) are the simplest and enjoy higher AGI limits. But gifts of property may be more beneficial. It’s a little more complicated to make them, but they often provide more tax benefits when planned properly. Your deduction depends in part on the type of property donated: long-term capital gains property, ordinary income property or tangible personal property. Your deduction could also depend on what the charity plans to do with the donated property. 

Ordinary income property includes items such as stock held for less than one year, inventory and property subject to depreciation recapture. You can receive a deduction equal to only the lesser of fair market value or your tax basis.

Long-term capital gains property includes stocks and other securities you’ve held more than one year. It’s one of the best charitable gifts because you can take a charitable deduction equal to the current fair market value without recognizing the gain on the property. Keep in mind that it may be better to elect to deduct the basis rather than the fair market value, because the AGI limitation will be higher. Whether this is beneficial will depend on your AGI and the likelihood of using — within the next five years — the carryover you would have if you deducted the fair market value and the 30% limit applied.  

Keep in mind that charitable gifts of long-term capital gain property to a private foundation are generally reduced by the long-term capital gain.  There is an important exception to this rule for publicly traded securities.  Gifts of publicly traded securities to a private foundation are not reduced by the long-term capital gain on the stock.    

Individuals over age 70½ can make distributions from an IRA of up to $100,000 to certain charitable organizations without including the distribution on gross income, which may provide a better tax result than a charitable deduction. See the discussion under the “required distributions” section later in the guide.

Documentation

The IRS is concerned that the value of noncash gifts is being overstated, and this area is the focus of significant scrutiny.

Taxpayers are required to obtain written substantiation of certain contributions with a contemporaneous written acknowledgment from the charitable organization. This requirement applies to cash gifts of over $250 and non-cash contributions of over $500. There are specific items that must be included in the acknowledgement from the charity, including a description of the property contributed, a description and good faith estimate of the value of any goods or services with more than an insubstantial value received in exchange for the contribution, and if the donee provides intangible religious benefits, a statement that it provides such benefits. The IRS has successfully disallowed sizeable charitable deductions when the taxpayer has not received the proper acknowledgement in a timely fashion. This documentation requirement applies to all charitable contributions including public charities and private foundations.

A qualified appraisal is required for noncash contributions of over $5,000. This issue is especially troublesome when the property given to charity is art or an interest in real property.  This type of property can be hard to value, with disagreement possible even among appraisers. You should ensure that any appraiser selected for a valuation has the requisite experience in the specific type of property being appraised. Charitable gifts have been disallowed or limited for gifts without a proper valuation.  

There are some exceptions to the appraisal requirement.  The most important exception is for donations of publicly traded securities. Importantly, many digital assets are not considered traded on a public exchange. Since the assets are not considered cash either, they are generally subject to the appraisal requirement.    

The IRS is also strictly enforcing procedural filing requirements, so mistakes can be costly. The IRS requires all forms to be complete and accurate and filed on time. If any section of the form is not complete, the entire charitable deduction may be disallowed. 

There are several other key rules to keep mind:

• If you contribute your services to charity, you can deduct only your out-of-pocket expenses, not the fair market value of your services.
• You receive no deduction by donating the use of property, such as the use of a vacation property donated to a charity for an auction.
• If you drive for charitable purposes, you can deduct 14 cents for each charitable mile driven.
• Giving a car to charity results only in a deduction equal to what the charity receives when it sells the vehicle unless it is used by the charity in its tax-exempt function.
• If you donate clothing or household goods, they must be in at least “good used condition” to be deductible.

Alternative minimum tax

The alternative minimum tax (AMT) can feel like a punishment for success. Once your income rises to a certain level and you think you’ve figured out your taxes, you’re forced to run everything through a completely different set of calculations.

The AMT is essentially a separate tax system with its own rules. It works by limiting specific tax benefits to ensure that certain high-income taxpayers pay a certain minimum amount of tax. Each year you must calculate your tax liability under the regular income tax system and the separate AMT system and pay the higher amount.

The good news is the AMT affects far fewer taxpayers than it used to thanks to the increased exemption enacted as part TCJA. The SALT cap and other limits on deductions has also reduced the number of taxpayers who currently pay the AMT. The bad news is that there are still millions of taxpayers affected, and could be many more if the AMT relief in the TCJA is not extended past 2025.

The AMT has a lower top rate than the regular income tax system, with just two tax brackets of 26% and 28%, but many deductions and credits aren’t allowed against it. Taxpayers with incomes significantly exceeding the exemption and who use deductions or benefits that are reduced or not allowed under the AMT are the ones stuck paying it.

It’s critical to know whether you’ll be subject to the AMT before your tax return is due. You need to know if you’ll benefit from certain tax incentives before making business and investment decisions that hinge on the tax treatment. Common AMT triggers include the following:

• Investment advisory fees
• Incentive stock options
• Interest on a home equity loan not used to build or improve your residence
• Tax-exempt interest on certain private activity bonds
• Accelerated depreciation adjustments and related gain or loss differences on disposition

If the SALT cap is removed, SALT deductions will once again become a major trigger for the AMT and subject millions more taxpayers to it.

AMT planning

There are ways to mitigate or even benefit from the AMT by leveraging its low top rate. You just need to plan. Multi-year tax planning can help you accelerate income into years when you are subject to the lower AMT rates and postpone deductions into years when you can use them against the higher regular tax rates.

Long-term capital gains and qualified dividends deserve special consideration for the AMT. They are taxed at the same 15% and 20% rates under either the AMT or regular tax structure, but the additional income they generate can reduce your AMT exemption and result in an effective rate of 20.5% instead of the normal 15% (or 25.5% for capital gains in the 20% bracket). You should consider the AMT as part of your tax analysis before selling any asset that could generate a large gain.

Employment and investment taxes

Income taxes are only a part of the picture, especially for successful investors, executives, and business owners. This means looking at employment taxes and the net investment income tax.

Earned income

The taxes on earned income that are used to fund Social Security and Medicare are called employment taxes because they apply to salaries, wages and bonuses. The Social Security tax on earned income is capped ($168,600 in 2024 and $176,100 in 2025), but the Medicare tax has no limit. Both employees and employers pay Medicare tax at a 1.45% rate until earned income reaches $200,000 (single) or $250,000 (joint), and then the employee rate share increases to 2.35% for a total rate of 3.8%.

The business income from sole proprietors and partners is generally self-employment income with some key exceptions, meaning self-employment tax is due on both the employee and employer share of the Medicare tax. You can take an above-the-line deduction for the employer portion of self-employment tax.

Investment income

The net investment income (NII) is designed to impose tax on investment income at a rate that is equivalent to the top combined employment tax rate. The 3.8% tax applies to NII to the extent AGI exceeds $200,000 (single) or $250,000 (joint). NII includes rent, royalties, interest, dividends and annuities. There is an exception if the income is derived in the ordinary course of a trade or business in which you are not passive. On the other hand, all income from businesses in which you are passive is regarded as NII regardless of the type of income. In addition, income from trading in financial instruments is always NII.

Business owners

It’s important to consider the employment taxes and NII together, particularly for business owners. If you have to pay employment or self-employment tax on a stream of income, it is not included in NII. You never have to pay both taxes on the same income. Self-employment tax provides a better result because of the deduction for the employer share of tax. There may be limited situations in which neither tax will apply.

Owners of S corporations who are not passive in the business must take a reasonable salary and pay employment tax on wages, but they otherwise may not face self-employment tax or NII on their pro rata share of income of the S corporation.

The treatment of partners for self-employment taxes is more complex and is one to which the IRS is giving increased scrutiny. The issue revolves around an exception from self-employment tax under Section 1402(a)(13) for the distributive share of partnership income of a “limited partner.” Partners can potentially avoid self-employment tax on their distributive share of partnership income if they can establish that they are limited partners. But for this position to benefit the partners, they would also need to exclude their income from the NII tax by being active in the business.

Since the Tax Court ruled in favor of the IRS in Renkemeyer, Campbell, & Weaver, LLP v. Commissioner (136 T.C. 137) in 2011, it has become much more difficult for taxpayers to argue that they are both limited partners in a partnership while also being active enough in the business to avoid passive treatment. The Tax Court analysis established in Renkemeyer looks less at legal liability and more at whether activities the partner engages in are consistent with the general concept of a “limited partner.” The Tax Court has applied this analysis to LLCs and other entities organized as a partnership, and has recently reached an initial decision affecting entities that are established as limited partnerships under local law.

The Tax Court in late 2023 reached summary judgment in Soroban Capital Partners LP v. Commissioner, holding that it is not enough just to be considered a limited partner of a limited partnership under local law. The Tax Court held that the determination of eligibility for the limited-partner exception requires a “functional analysis test to determine whether a partner in a state law limited partnership is a ‘limited partner,’ as such.”

There are still several outstanding cases, and the Tax Court has not yet applied such a functional analysis. This is an evolving area of law, and taxpayers in similar situations should consider the issue carefully, particularly partners in a private equity partnership. 

Executive compensation

Equity compensation keeps growing to make up an ever-increasing share of executive income, and this can create tax challenges. Two of the most popular types of equity compensation are restricted stock and incentive stock options (ISOs).

ISOs give you the option of buying company stock in the future. The price (exercise price) must be set when the options are granted and is customarily set at exactly the fair market value, so the stock must rise before ISOs have any value. Many executives struggle with when they should exercise these options.

There is no regular tax when options are exercised, the tax is applied only when the stock is actually sold. so taxpayers can wait to see if ISOs gain significant value before exercising. If you are potentially subject to the AMT, then it can sometimes make sense to exercise early. The difference between the fair market value of the stock at the time of exercise and the exercise price is included as income for AMT purposes. The potential AMT liability on this bargain element is a problem because exercising the option alone doesn’t generate any cash to pay the tax. If the stock price falls before the shares are ultimately sold, you can be left with a large AMT bill in the year of exercise even though the stock actually produced no income.

You can exercise early when the bargain element is small to reduce or eliminate AMT liability. Exercising early also starts the holding period for long-term capital gains treatment sooner. Long-term capital gains treatment is available if the stock is held for more than one year after exercise and two years after the grant date. Of course, an early exercise ties up your investment capital and substantially changes your investment position. This requires you to balance your investment and tax risks and objectives. If you are confident in how the stock will perform and what your tax rates will be, the decision can be fairly easy, but it usually requires a deeper analysis.

Restricted stock, which is granted subject to vesting, presents different tax considerations. The vesting is often based on time but can also be based on company and individual performance.

Normally, income recognition is deferred until the restricted stock vests. You then pay taxes on the fair market value of the stock as of the vesting date at the ordinary income rate. There is an election under Section 83(b), however, to recognize ordinary income when you receive the stock rather than waiting until it vests.

With a Section 83(b) election, you immediately recognize the value of the restricted stock as ordinary income when the stock is granted. In exchange, you don’t recognize any income when the stock actually vests. You recognize gain only when the stock is sold, and the gain is taxed as a capital gain.

So why make a Section 83(b) election and recognize income now, when you could wait to recognize income when the stock vests? Because the value of the stock may be much higher when it vests. The election could make sense if the income at the grant date is negligible or if the stock is likely to appreciate significantly before income would otherwise be recognized. In these cases, the election allows you to convert future appreciation from ordinary income to long-term capital gains income.

The biggest drawback may be that any taxes you pay because of the election can’t be refunded if you eventually forfeit the stock or the stock’s value decreases. But if the stock’s value decreases, you can report a capital loss when you sell the stock.

It’s critical to remember the election must be made within 30 days by filing a written statement with the IRS office where you file your income tax return. The election no longer needs to be attached to your income tax return, though it’s important to remember that the 30-day deadline is statutory. The IRS doesn’t offer relief for missed elections for any reason, including reasonable cause. So, if you want to make the election, be sure to act fast.

Retirement incentives

Retirement planning as a successful investor, business owner, or executive is often less about retirement and more about leveraging some of the best incentives the tax code has to offer. Several recent legislative changes have made retirement tax rules even more generous. Anyone with a substantial portfolio should carefully assess where investments are held in order to take advantage of the significant savings offered by tax-preferred retirement vehicles.

Employer accounts

Employer-sponsored defined contribution accounts like Section 401(k) plans have several advantages over IRAs, which are generally maintained by an individual. For one, many employers offer matching contributions, and there are no income limits for contributing. The tax benefits of these accounts in the traditional versions are twofold: Contributions generally reduce your current taxable income, and assets in the accounts grow tax-deferred — meaning you will pay no income tax until you receive distributions. Contributing the maximum amount allowed ($23,000 in 2024 and $23,500 in 2025) is usually a smart move. That also means making full catch-up contributions when you reach age 50.

The limit on catch-up contributions for qualified retirement plans reached $7,500 in 2024 and 2025, and under recent legislation, taxpayers aged 60 to 63 will benefit from an increased $11,250 limit in 2025. But there’s a catch. Taxpayers with wages exceeding $145,000 will eventually be required to make all catch-up contributions on a Roth basis. This provision was originally scheduled to take effect in 2024, but the IRS delayed it until 2026.

IRAs

Individual IRAs have some limits that can make them harder for high-income taxpayers to use. Contributions to traditional IRAs aren’t deductible above certain income thresholds if you’re offered a retirement plan through your employer. The good news is that recent legislation repealed the 70½-year age cap on contributing to an IRA. The age for required minimum distributions has also increased, as later discussed.

IRAs have other advantages. You have more flexibility over how you invest, and you can even self-direct an IRA. If you’re above the deductibility threshold, you can also consider making nondeductible contributions and then rolling over into a Roth version, discussed below.

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Roth accounts

Both qualified retirement plans and IRAs offer Roth versions. The tax benefits of Roth accounts differ slightly from those of traditional accounts. Roth accounts allow for tax-free growth and tax-free distributions, but contributions are neither pretax nor deductible.

The difference is in when you pay the tax. With a traditional retirement account, you get a tax break on the contributions and pay taxes only on the back end when you withdraw your money. For a Roth account, you get no tax break on the contributions up front, but you never pay tax again if distributions are made properly.

There is an income limit for making Roth contributions to an IRA, but you can manage the issue by making nondeductible contributions to a traditional IRA and then rolling it over. There are potential pitfalls. Rolling over from a traditional IRA that received both deductible contributions and nondeductible contributions will create a pro rata rollover in which some of the funds will be considered to come from deductible contributions, resulting in tax and potentially early withdrawal penalties.

Required distributions

You must begin making annual minimum withdrawals from most retirement accounts when reaching a certain age, but that age keeps rising under recent legislation. The age is now 73 for those who turned 73 in 2023 and later. It will rise to 75 in a few years.

Required minimum distributions (RMDs) are calculated using your account balance and a life-expectancy table. They must be made each year by Dec. 31 or you are subject to a 50% penalty on the amount you should have withdrawn. If you are already subject to these rules, you should check to make sure you have fulfilled them before the end of this year to avoid steep penalties. You may not be required to make distributions if you’re still working for the employer who sponsors your plan.

Inherited IRAs

Taxpayers that inherit an IRA have separate distribution rules. These rules recently changed under legislation that applies to IRAs inherited from an account holder who died in 2020 or later. If you inherit an IRA from a spouse, you have more options, including rolling over into your own IRA or taking distributions based on your own life expectancy. Most other taxpayers are now required to empty the account within 10 years even if they are under the age for required minimum distributions. In addition, under final regulations from the IRS, if the original account holder had already reached the RMD age before death, then the beneficiary is required to continue to make RMDs each year during this 10-year period. The IRS has provided transition relief that will absolve taxpayers from penalties for failing to make these annual RMDs from 2022 through 2024, but the relief expires in 2025.

Planning options

Consider leaving as much as possible in your tax-preferred retirement accounts except what is required to fulfill the RMD rules. Your investments inside the accounts are growing tax-free and you are deferring the tax on the income that occurs when you do distribute (except for Roth versions, which aren’t included in tax at distribution). If you can afford to, spend the money you have invested outside of tax-preferred accounts first to protect as much of your portfolio from tax as you can as long as you can.  If money remains in an IRA at death, heirs can continue to defer tax on the income even longer.

You can also consider making a tax-free charitable contribution out of an IRA to satisfy the RMD rules.

This can save you more than making a taxable distribution and separately taking a charitable deduction for any gifts. A charitable deduction can be reduced by limitations and phaseouts, and erases taxable income only after you’ve already calculated your AGI. When you instead make the gift straight from an IRA distribution, the amount of the gift is not included in income at all, lowering your AGI. A lower AGI not only directly reduces the amount of income subject to tax, but also blunts the effect of many AGI-based limits and phaseouts.

Transfer tax planning

The favorable estate, gift, and generation-skipping transfer tax lifetime exclusions, which reached $13.61 million in 2024 and $13.99 million in 2025, have greatly reduced the number of taxpayers potentially subject to estate and gift taxes. It’s important to keep in mind, however, that these thresholds are scheduled to be cut in half in 2026 without any new legislation. The Republican election sweep makes it more likely that the increased exemptions will be extended, but this is far from guaranteed. If Republicans have to make difficult decisions between priorities, they may feel more pressure to fulfill promises to low- and middle-income taxpayers than to the high-income individuals affected by transfer taxes. It may still be prudent to prepare strategies to use the lifetime gift and estate tax exclusions in 2025 before they are potentially cut in half in 2026.

The IRS has issued helpful guidance allowing taxpayers to leverage the current exemptions without fear of future changes clawing back the benefit. The rules provide that the estate tax can be determined using the exemption amount allocated to gifts made during the increased exemption period or the exemption amount at the time of death, whichever is greater. Taxpayers who do not take advantage of the increased exemptions with gifts before 2026 could forfeit the benefit of the increased exemptions if they are not extended.

The current economic client can complicate estate tax planning. Inflation is easing, but interest rates are still much higher than in previous years. Many transfer tax strategies hinge on the ability of assets to appreciate faster than interest rates prescribed by the IRS. Taxpayers should consider the current outlook for interest rates and the types of assets that are most likely to appreciate in the current environment. Key transfer tax planning strategies you may want to consider include the following:

• GRAT: A grantor-retained annuity trust pays you an annuity for a limited term, with the assets passing to heirs afterward. The value of the gift is calculated at the time the GRAT is formed using IRS interest rates to determine how much is expected to be left at the end of the term. If the assets appreciate faster than the interest rates, the remainder is passed to heirs tax-free.
•  IDGT: An intentionally defective grantor trust that is similar to a GRAT, except that you sell assets to the trust in exchange for a note at IRS-prescribed rates. If the assets appreciate faster than the interest rates, then heirs will receive the assets left after paying the note.
• CLT: A charitable lead trust is similar to a GRAT except that the income is paid to a charity instead of you, with any remaining assets passed to heirs. The value of the remainder interest is calculated using IRS interest rates to determine how much is expected to be left at the end of the term. If the assets appreciate faster than the interest rates, the remainder is passed to heirs tax-free.
• CRT: A charitable remainder trust is the opposite of a CLT in that it pays income to beneficiaries, with the remainder interest going to charity. The assets are removed from the estate, and you may be able to deduct contributions from income tax, but beneficiaries must also pay income tax on the income they receive from the trust.
• FLP: A family limited partnership allows you to consolidate business and investment assets into a partnership for better management, and then to potentially pass the partnership interests on to heirs at valuation discounts for lack of marketability and control.

This list is far from exhaustive. There are many other options that can help you accomplish common goals such as skipping several generations of tax, providing for a spouse while protecting children, passing on a home at reduced value, and excluding insurance proceeds from your estate.

Leveraging the annual gift tax exclusion is another key opportunity for taxpayers that may be subject transfer taxes. The annual exclusion reached $18,000 in 2024 and is set to be $19,000 in 2025. You can double the 2024 exclusion to $36,000 by electing to split gifts with a spouse. So even if you want to give to just four individuals, you and a spouse could give a total of $144,000 this year with no gift tax consequences. If you have more people you’d like to benefit, you can remove even more money from your estate every year. Consider whether you have opportunities to use the 2024 exclusion by Dec. 31 before it’s forfeited.