As 2025 approaches, high-income earners find themselves at a critical tax planning crossroads. The pending expiration of key provisions of the Tax Cuts and Jobs Act (TCJA) means that many favorable tax strategies may disappear by January 1, 2026. For those with substantial incomes, business interests, or complex financial lives, the time to act is now.
When your marginal tax rate is higher, every dollar saved through planning has more impact. That’s why high earners need more than just tax preparation—they need proactive, forward-thinking tax and financial planning.
What’s at Stake for High-Income Taxpayers?
The TCJA lowered the top federal tax rate from 39.6% to 37%, expanded the standard deduction, capped certain itemized deductions, and introduced new breaks like the Qualified Business Income (QBI) deduction. However, many of these provisions are set to sunset after 2025. If that happens:
- The top marginal rate will rise back to 39.6%.
- Deductions for state and local taxes (SALT) could become uncapped—but other limitations will return.
- The QBI deduction for pass-through business income may disappear.
- Estate and gift tax exemptions could drop by nearly 50%.
The result? A potentially much larger tax bill for high earners in 2026 and beyond.
Tax Planning Moves to Consider in 2025
To prepare for this shift, high-income earners should be reviewing their 2025 tax strategies now. Below are several key opportunities worth exploring with your advisor team:
1. Accelerate Income into 2025
If your income will be taxed at a higher rate in 2026, you may benefit from realizing more income while the rates are still lower. Strategies might include:
- Taking bonuses or deferred compensation in 2025
- Exercising stock options earlier
- Selling appreciated assets now instead of later
While no one enjoys paying taxes sooner than necessary, paying at 37% may be more attractive than paying at 39.6% or higher.
2. Maximize Charitable Contributions
Charitable giving remains a powerful tool for reducing taxable income. High-income earners can get even more strategic by using:
- Donor-Advised Funds (DAFs): Contribute appreciated securities to a DAF in 2025, take the full deduction now, and distribute the funds to charities over time.
- Bunching Contributions: Consider grouping several years’ worth of donations into 2025 to maximize itemized deductions before rules change.
This not only supports the causes you care about, but also offers a smart way to manage tax exposure.
3. Consider Roth Conversions
If you expect to be in a higher tax bracket in the future—or if rates go up post-2025—converting traditional IRA or 401(k) assets into a Roth account can be a savvy move.
- Pay taxes on the conversion now at today’s lower rates
- Enjoy tax-free growth and withdrawals later
- Potentially reduce future Required Minimum Distributions (RMDs)
This strategy is especially effective if you have a window of lower income or can pair it with charitable deductions to offset the tax hit.
4. Review Business Entity Structure
Business owners should evaluate whether their current entity structure still makes sense in light of the potential sunset of the 20% Qualified Business Income (QBI) deduction.
- S-Corp owners may want to re-evaluate reasonable compensation strategies
- LLCs and partnerships might consider the pros and cons of incorporating
- Those considering a sale or succession event should assess how 2025 rules may affect timing and tax efficiency
These decisions impact not just your taxes, but your broader financial and exit planning goals.
5. Use the Higher Estate and Gift Exemptions While You Can
The current federal estate and gift tax exemption is historically high—over $13 million per individual in 2025. If Congress allows the TCJA to expire, that amount could be cut in half.
High-net-worth individuals and families should consider:
- Gifting strategies to transfer wealth efficiently
- Spousal Lifetime Access Trusts (SLATs) or other advanced planning tools
- Coordinating estate, tax, and investment plans to minimize long-term tax drag
Why a Coordinated Plan Matters
Tax planning doesn’t happen in a vacuum. Decisions about income timing, gifting, and asset sales have ripple effects across your entire financial life—from retirement security to investment strategy to legacy planning.
That’s why it’s critical for high-income earners to work with both a tax professional and a financial planner who understand how to integrate strategies across disciplines. When both teams are aligned, you get a more complete and efficient plan tailored to your specific situation.
Final Thoughts
The window is closing. The sunsetting of the TCJA could significantly impact your tax picture, but it also opens a rare planning opportunity. By acting in 2025, you can position yourself ahead of the curve—locking in favorable treatment, minimizing your lifetime tax burden, and ensuring your long-term financial goals stay on track.
Don’t leave thousands (or more) on the table. Reach out today for a comprehensive tax and financial planning review tailored to your income, your business, and your future.