IRS 2025 Revenue Proposals: Potential Impacts to Estate Planning?


The Internal Revenue Service (IRS) has proposed several significant changes to the tax code as part of its revenue proposals for 2025. If enacted, these changes could have profound implications for estate planning.

As estate law and financial professionals closely monitor these potential revisions, it's crucial for individuals interested in safeguarding their wealth for future generations to stay informed about these impending changes.

The IRS's 2025 revenue proposals target wealthy individuals, potentially impacting estate planning strategies. These proposals include raising the top income tax rate, taxing capital gains at death, eliminating the stepped-up basis for capital gains, limiting the annual gift exclusion, reducing the estate and gift tax exemption amount, and limiting the generation-skipping transfer (GST) tax exemption. Understanding these potential changes is vital to maintaining confidence in your estate planning strategy.

One of the crucial proposals is the plan to increase the top income tax rate from 37% to 39.6% for individuals earning more than $400,000 per year. This change alone could necessitate reviewing and possibly adjusting an individual's current estate planning strategy.

Further, the IRS proposal suggests taxing unrealized capital gains at death. Currently, unrealized capital gains - the appreciation of assets not sold before death - are not subject to income tax. The new proposal intends to tax these gains, potentially creating a significant liability for estates with substantial appreciated assets.

Likewise, under the current law, inherited property receives a "stepped-up basis," allowing the heir to avoid capital gains tax on the property's appreciation during the decedent's lifetime. The 2025 proposal aims to eliminate this benefit, significantly impacting estate plans structured around this provision.

Moreover, the IRS proposes to limit the annual gift exclusion, currently set at $15,000 per recipient. A reduction in the exclusion amount would prompt a reevaluation of gifting strategies within estate plans.

The IRS also proposes reducing the estate and gift tax exemption amount from the current historically high level of $11.7 million per individual. This significant reduction could increase the estate tax liability of larger estates. 

Last, the proposed changes include capping the generation-skipping transfer (GST) tax exemption, which addresses transfers made to skip a generation, such as grandparent-to-grandchild transfers.

In conclusion, while the IRS's 2025 revenue proposals are still in the proposal stage, their potential for enactment is significant. The scope of these changes would require careful examination and likely revision of numerous estate plans. It's essential to seek guidance from financial, legal, and tax professionals experienced in estate planning to understand how these prospective changes may impact your wealth preservation strategy.


The Seven Economic Indicators Investors Must Monitor


Understanding the many economic indicators that can impact your portfolio's performance is essential as an investor. Monitoring these indicators can help you better predict patterns, identify trends, and make informed investment decisions.

Here are some key economic indicators to watch this year.

Gross Domestic Product (GDP) — measures a country's total economic output over a specified period. It essentially represents an economy's size and growth rate, making it a fundamental indicator for investors to monitor. A growing GDP signifies a healthy economy, often leading to stronger corporate profits and higher stock prices.

Unemployment Rate—The unemployment rate is another critical indicator of an economy's health. High unemployment rates can spell trouble as they often correspond to lower consumer spending, which leads to lower corporate profits and, consequently, lower stock prices.

Inflation Rate— Inflation denotes the rate at which the overall level of prices for goods and services is rising. While moderate inflation is a sign of a growing economy, excessively high or rapidly increasing inflation can erode purchasing power and lead to economic instability. Watching this indicator helps investors adjust their strategies to shield themselves from inflation's effects.

Interest Rates— Central banks worldwide use interest rate adjustments to control inflation and stabilize the economy. Rising interest rates increase borrowing costs, potentially slowing economic activity and negatively impacting stock prices. Conversely, falling interest rates can stimulate economic growth and boost stock prices.

Consumer Confidence— The Consumer Confidence index measures consumers' optimism about their future financial position. High consumer confidence tends to stimulate economic growth as consumers spend more. This increased spending can drive up business revenues and stock prices.

Manufacturing Index— The Manufacturing Index is a barometer for the sector's health. An increasing index demonstrates that the industry is growing, which can lead to increased employment and consumer spending.

Housing Market IndicatorsThe housing market is often a reliable indicator of overall economic health. New housing construction starts suggest that builders are optimistic about future sales, which can translate into increased economic activity and potentially higher stock prices.

In conclusion, understanding and tracking these economic indicators are essential when making investment decisions, as each provides insights into an economy's overall health and direction. By analyzing these indices, investors can more accurately predict changes in business cycles and adjust their strategies accordingly.

Whether you're a seasoned investor or a novice, it's vital to work with your financial professional and monitor these economic indicators as you work toward your goals.


Tips to Help You Spring Clean Your Financial Life


Spring is a great time to declutter your homes and an excellent opportunity to clean up your financial life. Spring cleaning must involve reviewing, reorganizing, and eliminating unnecessary financial clutter to help make your money management more efficient.

Despite the significance of spring cleaning, financial cleaning is an area that tends to be overlooked during the spring cleaning spree. To start spring cleaning your finances, you must separate your financial life into critical sections, highlighted in the seven steps below.

Step #1— Analyze your budget. Compare your current expenditures with your income streams. Examine your bank statements, credit card invoices, and receipts to assess where your money is going. This review will help provide insight into any unnecessary bills, subscriptions, or recurring payments that you can eliminate to save more for future goals.

Step #2—Review savings and investing. Reviewing your savings and investments is another crucial part of financial spring cleaning. Check if you are saving enough and whether your investment strategies align with your risk tolerance, timeline, and goals. Diversify your investments to help manage risk and optimize returns. Consider consulting a financial professional to ensure adequate investment planning.

Step #3—Review your credit report. Regularly check your credit reports for discrepancies and report them promptly. Maintaining a good credit score is critical for securing loans or credit cards at favorable interest rates.

Step #4—Evaluate your financial goals. Your financial landscape may change, so reevaluating your financial goals is essential. These may include short-term goals, such as creating an emergency fund or saving for a vacation, and long-term goals, such as purchasing a home or saving for retirement. Ensure your income and expenditures align with accomplishing these goals.

Step #5—Conduct an insurance review. It’s essential to evaluate your insurance coverage, whether you have health, home, auto, or life insurance, to ensure your policies cover your current requirements as your life circumstances change.

Step #6—Review your will and estate documents. Lastly, remember your estate planning documents, such as wills and trusts. Ensure that beneficiaries are updated on significant life changes, such as marriage, divorce, births, and deaths.

Step #7—Work toward appropriate financial habits. Decluttering involves practicing habits that enhance, not hinder, your financial life. This decluttering involves regular financial evaluation, timely bill payment, debt reduction, and savings automation. Leverage technology and use budgeting apps and tools to streamline and simplify financial management.

Spring cleaning isn’t just about decluttering your physical environment; it's also an opportunity to clean and organize your finances so you may enjoy a more decluttered financial life.

 


4 Trends Set to Impact Earnings Season 2024 and Beyond


The financial ecosystem is ever-evolving, and the 2024 earnings season is no exception. Consistently, each earnings period generates a flurry of activity among investors across the globe as publicly traded companies release their quarterly or annual earnings reports.

For investors, this event indicates stock market performance and dictates subsequent strategic portfolio decisions.

We have observed significant transformations in the earnings season due to many factors. Technological advancements, other dynamics such as global economic conditions, and regulatory changes reshape earnings seasons in ways we haven't seen before. Here are the trends set to impact earnings season this year and beyond

Digitization

With the continued adoption of powerful financial technologies, companies now have sophisticated digitized tools and software at their disposal, making the process more efficient in monitoring potential losses and forecasting projected returns. These technologies offer real-time insights and data-driven analytics, enabling faster, more accurate reporting and projections.

Cybersecurity is another area of digitization that impacts earnings season. Companies must implement cybersecurity tools to prevent the loss of data and PII (Personal identifying information), which can lead to substantial fines, lawsuits, and loss of business.

ESG Factors

Another distinct feature of 2024's earnings season is the increased scrutiny of Environmental, Social, and Corporate Governance (ESG) factors. With growing awareness and concern about sustainable business practices, stakeholders are more alerted than ever about ESG disclosures. The earnings season is not merely about profit and loss anymore; it also includes whether the firm is aligning its operations with the broader societal objectives. For companies, this means they have to look beyond traditional financial metrics and include sustainability targets in their reports, creating a different perspective during the earnings season.

Lingering Pandemic effects

Moreover, the impact of the COVID-19 pandemic has long-term effects on how companies report their earnings. With industries and economies recovering from the shake-up caused by the pandemic, this 'new normal' has been reflected in the 2024 earnings season. In their reports, companies are factoring in business disruptions, shifts in consumer behavior and demand, and supply chain adjustments, among other factors. This shift makes a significant difference in the earnings season by introducing new considerations for businesses and investors.

Geopolitical dynamics

Geopolitical dynamics also play a crucial role in making the earnings seasons different. The continuous changes in trade policies globally profoundly impact companies' bottom lines. With countries adopting preservationist measures, trade disputes, and tariffs are causing considerable fluctuations in earnings. Companies must navigate these challenges and forecast their potential impacts while reporting their earnings. Consequently, a higher degree of volatility may occur during earnings season.

The earnings season in 2024 may differ from its traditional form due to factors such as digitization, sustainability, pandemic impacts, and geopolitical events. These factors provide an evolved perspective for assessing a company's performance. All these changes encourage investors to consider their insights, shaping the future of investing decision-making.


Disclaimer

Investment advisory services are offered through Wealth Watch Advisors, an SEC-registered investment advisor. Neither Wealth Watch Advisors or J. Martin Wealth Management, LLC are endorsed by the Social Security Administration or any other governmental organization. Note, registration with the SEC does not denote a certain skill level or guarantee the success of an investment strategy. Wealth Watch Advisors and J. Martin Wealth Management, LLC are independent of one another.