The Financial Forecast: Preparing Today for Tomorrow’s Tax Landscape

Emphasizing the essence of comprehensive financial planning, it is crucial not only to strategize for present tax implications but also to meticulously plan for the constantly evolving future financial landscape.

In today’s episode of Retire in Texas, Darryl Lyons navigates the intricate terrain of impending tax changes, estate planning nuances, and strategic financial decisions, providing indispensable insights for proactive and future-focused financial planning.

Some of the topics discussed include: 

  • The imminent change in the Tax Cuts and Jobs Act by 2025, suggesting potential increases in taxes.
  • A breakdown of the complexities of estate tax dynamics, such as exemptions, potential changes, and proactive strategies for those with estates exceeding $10 million.
  • Uncovering the art of strategic gifting to family members and staying below triggering thresholds to avoid tax implications.
  • Exploring potential changes in tax brackets and standard vs. itemized deductions.

If you enjoyed today’s episode, make sure to share it with your friends and family!


Hey, this is Darryl Lyons, CEO, Co-Founder of PAX Financial Group. Thanks for tuning in to Retire in Texas. Remember this information is general nature only. It’s not intended to provide specific investment, tax, or legal advice. Visit PAXFinancialGroup.com for more information. Also, go to PAX Financial Group. We’ve got plenty of ebooks on the website.

Popular one right now is Strategies for Christians When Considering Giving, because there are some specific things that are aligned with Christian values that are important to consider when you’re doing your charitable giving. So that one’s on the website. That one seems to be popular. Also, Pivot is a popular one. When you retire, we think about not retirement, but pivoting into the next chapter.

And so that’s a popular e-book as well. So check those out. Those are free. I just try to get you in the community so that way you can digest this content on your own time. But here you’re digesting it audibly versus reading it. So I hope it’s helpful today. And this one’s a little trickier.

I have to admit. As you know, I like to not use a lot of numbers. I just think that the format of podcasts is almost better when I don’t throw out a lot of numbers. So that’s my preference. But I put all the numbers in the show notes. So if you need to research and just double check me, then it should be there.

Otherwise all this stuff’s Googleable. So that’s a word. And but I’m going to talk about something that’s kind of hard to do without some numbers, and that’s taxes, because it’s really, really important that you understand what’s about to happen in the tax overhaul. It’s not imminent, but you don’t want to wait till the last second to try to figure out how to navigate this stuff.

You want to get ahead of it. And this is in 2017, there was a huge overhaul of the tax code called the Tax Cuts and Jobs Act. TCJA and it was a huge cut. It really simplified the code in a lot of ways and reduced a lot of people’s taxes. You remember this and I’ll refresh your memory but it’s very important for you to understand that this tax cut of 2017 is going away, not at the end of 2023, not at the end of 2024, but at the end of 2025.

And you say, I am thinking about Christmas gifts right now. I don’t want to think about the end of 2025. Look, I’m a planner. Our whole team are full planners. We’re here to help think about those next few years, because I know that you’ve got a lot of stuff on your plate and everyone’s carrying something heavy. And so here we are.

We’re thinking about at the end of 2025 and how these taxes could impact you. And we can’t just pretend that change is not coming because it is coming. And I don’t think it’s a stretch for us to consider that the country has had these huge deficits, as you clearly know, and they’re going to have to pay for them somehow.

So the idea of paying more taxes in 2025 is very realistic and so are there some things that we could do prior to the end of 2025? And yes, there are. Over the last three years, I had a really great conversation five years ago, I guess, with a CPA in our community. And she said one of the things that PAX is not good at is tax.

I know it rhymes, it’s not intentional. And I thought, Well, that’s fair. I think we had spent a lot of time on portfolio construction. Now I do have an undergraduate degree in accounting, but I never really thought about us being more competent in that space. For some reason I missed that. I think sometimes I get caught up in portfolio construction, in markets.

And so when we digested that criticism from somebody, I respected it. It was done in the context of, okay, so here’s our reputation, how do we work through this and how do we bring more value in the tax base? I could hire a bunch of CPAs, which is a challenging thing to do because that’s a different personality and a lot of times.

But what I could do that I think would be very helpful is start recognizing that there are tools in the marketplace that can help us be better in tax strategies. About three years ago we began to really adopt a lot of tax strategy tools. We actually have an artificial intelligence tool that we use for tax strategy. We are actually adopting a brand new tax loss harvesting tool and then in our financial planning tool, our main chassis of financial planning, we’ve really made leapfrogs in understanding how to do long term forecasting and tax planning.

So I feel really good about where we’re at today. We’ve spent a lot of time and effort, not that we aren’t smart people, it just wasn’t a focus of ours. So at this point I believe that we’re good in our tax planning space that is different from a tax preparer or CPA. Many of them have a lot of skills, but some of them look at the taxes in the here and now.

Maybe even next year in some cases, but very few of them have the capacity or bandwidth to look at taxes long term. So when you think about the difference between what type of tax work we’re doing here at PAX, we’re looking at reducing your lifetime taxable income. Think of it that way. Our job is to help you reduce your lifetime taxable income.

Sometimes that’s in conflict with the CPA who wants to reduce your taxable income. Today, those things collide. We have robust conversations and cuts and fuss, and we draw conclusions on how to best serve our clients. So the hope that puts in perspective today I feel very good. I think we’ve got some awesome tools and we continue to build on it.

But how do we get in front of this? I mean, this real issue, the Tax Cuts and Jobs Act is going to be completely different in 2025. And I, I don’t like to make bold proclamations, but I think it’s safe to say we’re all going to pay more in taxes. So what can we do to get around this?

I want to talk about one tax because first of all, there’s a lot of different types of taxes. But I want to talk about one tax that doesn’t affect all of us, but hang with me, because I think that education in and of itself is important, and that’s the estate tax in Texas. This is Retire in Texas. Texas does not have a death tax, so a lot of states have an inheritance tax.

I don’t have a list of those states in front of me. But it’s not Texas. You’d have to Google if you’re listening to this show from out of state to find out if there’s a death tax or an inheritance tax in your state. But in Texas, there is not a death tax. So that’s good. But everyone’s subject to the federal estate tax is controversial in nature.

It’s designed theoretically to not allow wealth to be consolidated and passed from one generation to the next. And then you just have these big, wealthy families that control the country. And it’s supposed to break that apart. Does it work or not? I think that’s debatable. I think studying finances over the years, I just see there’s so many creative ways when you’ve got money to figure out a way to work around that stuff.

There’s just a lot of interesting strategies. If you’re uber wealthy to avoid this estate tax, the people who really get hurt the hardest are the ones that don’t have these sophisticated attorneys. They’re the farmers. They’re the blue collar workers that have amassed a huge net worth just with the calluses of their hands. And they don’t have all the attorneys and they’re the ones that suffer from this tax.

So I have it. It’s been a little while since I’ve digested the efficacy of the estate tax, but politically, it’s one that becomes a rich versus poor kind of controversy. But right now, the exemption. So that’s a keyword. The exemption means that this amount of money is exempt from the estate tax. So they call it an exemption.

The exemption for right now is about 25 million. So if you have under 25 million, all that money is exempt from the federal estate tax. If you’re over 25 million and I’m rounding numbers here, but if you’re over 25 million, then you are subject to the estate tax. The estate tax can go. It’s kind of a tiered system, but it can go as high as 40%, and that’s due in nine months.

So, you know, if you have a farm and you didn’t plan on this, maybe you have a farm just on the outskirts of Austin and all around you is D.R. Horton Properties and maybe even, you know, some really pristine retail space. So the value of your farmland has gone to 50 million and you’ve just you know, Grandpa just held out saying, I’m not selling it until the day I die and then he dies.

Well, then 25 million is exempt and the other 25 million is subject to the estate tax, up to 40%. So that, you know, that could be a let’s say, and I’m rounding here, that could be a $15 million federal estate tax on that farmer due in nine months and the asset the farm is just not liquid so it’s now a fire sale.

It becomes a real, real problem. So it’s important you know, the exemption now, the exemption, if it reverts back to the old number, you know, we could have, I mean, there’s a number of different ways to look at this. But you could have because there’s inflation factors to the old numbers so that if it says they’re going to revert back to the old number, it often says we’re going to revert back to the old number, but it’s going to be inflation adjusted.

I mean, you could have, you know, a $10 million estate tax depending on politically who’s in charge, right? Because if you have certain groups in charge, they could say, no, we really think this. We don’t believe in this estate tax. We want to keep it at 25 million. If you have other groups, you can say, no, we’re going to beat the rich, beat the rich, and we’re going to drop it down to 10 million.

And then if you have over ten, if you have over 10 million in your net worth and yeah, you could be subject to this estate tax. And the problem is that you may not know, but this includes life insurance, if not properly structured. Now, again, work with PAX. We’ve got some of the tools that can help you think through this thing that we’re very comfortable with.

But you could structure your life insurance to remove it from your estate illegally, but you just need to know about these things. So we got to pay attention to this. The other thing that some of the rich, rich people are doing is they’re actually giving away their estate now. I’m seeing it it’s they’re giving away their estate now.

So that way when this thing changes their maybe their entire state is under the limit. So that’s what’s happening today, giving to the family. You could give to a donor advised fund or charity. You could spend the money, which is kind of tricky to do. But some of the strategies that’s taking place now over the next two years are in anticipation of an estate tax change.

So that’s a consideration. If you’re, I’d say you need to talk with your advisor, if you’re probably 10 million and, that’s probably a pretty good number. It’s debatable. Again, I’m giving myself a lot of out here because, I mean, when I first started in the business it was 666,000 in 1999. So I mean, 10 million I don’t think is unreasonable, but it will probably be higher than that.

But I think if you’re at 10 million and considering life insurance, you probably just want to talk with your advisor and just kind of think through this stuff a little bit more. Now, I did cover gifting. Gifting is important because you can give a certain amount of money without triggering an estate tax. Let me say differently, you gift a certain amount of money without triggering a gift tax.

A lot of people ask me this question. I want to make sure it’s clear, you can give $17,000 to a child or anybody. Spouses can give unlimited amounts to each other, but you can give up to $17,000 to a child and not trigger any gift tax. You can give 100,000 to a child and not trigger any gift tax.

But the $17,000 number is important because anything above that triggers a form. It’s a disclosure form, form 709. And so all it is is disclosing to the IRS that you made this gift. So we try to keep gifts under 17,000. So some of the people that are trying to get their estate down, they do all these gifts and you can strategically give away more money if you’re thoughtful about how you do it.

So there’s some strategy there, but it really doesn’t put a big dent in a big estate. But it is important for you to know that you can do some giving strategically. But I don’t want to trigger a form. I’d rather the IRS not know what I’m doing if I don’t have to. So it’s in your best interest to work with your advisor on making sure that as you’re giving gifts, that it stays below those triggering thresholds, the tax brackets are going to change.

That’s the third one I wanted to mention. They’re already changing. They already have. You can go online and look at the new tax brackets. But one of the things that happened under this law was that we all got this really sweet standard deduction. So you get the choice between a standard deduction or an itemized deduction. You probably get it by now.

But the itemized deduction is typically going to be your mortgage interest, your charitable contributions. All those kind of go into a bucket. And if it’s higher than your standard deduction, then you get the itemized bucket. But everyone, almost everyone got such a benefit from the increase. The standard deductions that not many people are itemizing anymore. That could go away and we could go back to playing the game.

Did I itemize or did I do the standard deduction? So that game will be one that’s going to have to be considered again, I don’t know what they’re going to do there. I thought it’s worked out pretty well so far for that, for simplifying the tax return. But we’re going to have to take a look at that. There’s something and you can Google this because I don’t have the capacity on the show to discuss it, but there’s something called bunching, bunching expenses that you could do to itemize one year in standard deduction the other year.

And if you look at the cost savings over a couple of years, you’ve actually reduced your taxable income. So that’s something that could be considered. Bunching, again is something that you’ll Google talk with your PAX advisor or your tax advisor about. So three things I’ve covered quickly. I’ve covered the estate tax, I’ve covered gifting and I’ve covered the change in standard and itemized deductions.

The last thing I want to talk about is just Roth conversions. A lot of people are now looking and saying, okay, over the next couple of years, if I am going to pay more in taxes, I need to take Roth conversions a little bit more seriously. And so we’d like to convert them to brackets. So if you’re about to hit another bracket and you’ve got some wiggle room before you hit that 35% bracket, maybe another $10,000 of income, we could convert portions of it so we don’t hit that new bracket.

So converting to a Roth IRA is interesting because a Roth IRA, what that allows you to do is your money grows completely tax free and not subject to something called required minimum distributions down the road. So I say again, I’m kind of leaning. This is kind of a helicopter overview, but check with your advisor and run the modeling and say, Should I be converting my Roth IRAs?

You’ve got to be careful for those that are on Medicare if you’re doing conversions, because it could trigger a medicare surtax. Again, model this stuff out, play with it. But Roth conversions are one of the things that I’m seeing most often right now in anticipation of this sunset of the Tax Cuts and Jobs Act. So, man, I was not looking forward to this podcast.

I’m done. I wasn’t looking forward to it because I had to speak to you guys in numbers and I just don’t want to lose you. I hope you hung with me. I hope you know a couple of things now. One, if you have an estate over 10 million, that’s just my recommendation. Talk with your advisor and pay attention to what happens.

The estate tax. Number two, you can give gifts to your family. Just stay under that number. Make sure you know what that number is so you don’t trigger anything with the IRS. Number three, you may want to look at bunching and what that might look, look like over the next couple of years playing the itemized versus standard deduction game.

And then fourth Roth conversions. Check with your advisor, model out Roth conversions. I will keep you abreast of this. We are obviously two years away, but we’ll all keep you informed of how this might play out. We’ll start hearing the debate soon about how it plays out. It totally depends on the economic environment. If we’re in a bull market, bear market prosperity or despair.

Who’s in the office? Democrats or Republicans? All that factors into this. So right now we’re speculating. I’m giving you a heads up and then we’ll as we get more clarity, we’ll keep you informed. I hope this was helpful today. Check with your advisor. Make sure you’re digging into this stuff. And remember, you think different when you think long term.

Have a great day.



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