As the Federal Reserve embarked on its rate-cutting cycle nearly a month ago, the landscape of borrowing, spending, and investing is rapidly changing. The decision to lower interest rates typically aims to stimulate economic activity by making borrowing cheaper, encouraging consumer spending, and boosting business investment. However, as these changes unfold, individuals and businesses alike face a series of financial challenges and opportunities—especially when it comes to taxes.
Understanding how these lower rates could affect your tax liabilities and financial strategy is critical, according to BNY Pennsylvania chairman and Midwest regional president Eric Boughner. In a recent interview with Wealth!, Boughner stressed the importance of proactive planning in light of the Fed’s ongoing monetary policy adjustments.
“By working with tax and financial advisers, you can create a comprehensive plan ahead of tax season,” says Boughner. “This ensures that you’re on track to meet your financial goals and are prepared for any unforeseen changes, whether that be from the Federal Reserve or upcoming tax law adjustments.”
The connection between interest rates and taxes might not always be obvious, but they are closely linked in several key areas of personal finance. Lower interest rates can influence everything from mortgage payments to savings account returns, and each of these can have tax implications. According to Boughner, it’s important to examine all financial facets—including your investment portfolio, estate planning activities, and overall tax liabilities—to ensure you aren’t caught off guard.
“You have to look at all of your tax liabilities and your estate planning activities, plus your investment portfolio, and figure out which ones are tied to interest rates and which ones have some impact,” Boughner advises.
One area that’s directly impacted by falling interest rates is taxable interest income. With rates down, the income generated by savings accounts, bonds, and other interest-bearing assets will decrease. While this may sound discouraging at first glance, Boughner points out a silver lining: less taxable interest income means lower overall tax liabilities.
“We’re emphasizing to our clients that less taxable interest income equals fewer taxes overall. This might free up room to explore other financial strategies, such as increasing investment in equities or real estate, which could yield different tax benefits,” he explains.
For those focused on long-term wealth preservation and passing assets to future generations, estate planning activities must also be reviewed in light of interest rate cuts. Boughner underscores the need to look closely at asset allocation—how your investments are spread across stocks, bonds, real estate, and other vehicles—and reassess whether your current strategy still aligns with your goals under new economic conditions.
“If you’re heavily invested in fixed-income assets, for example, you might want to consider reallocating some of those funds. With interest rates lower, the returns on bonds and other similar investments could diminish, reducing their overall value within your estate. This could potentially lower estate taxes, but it also means rethinking your broader wealth strategy to ensure you’re still on track for long-term growth.”
Boughner suggests working closely with financial planners to explore options like gifting strategies or the establishment of family trusts to maximize tax efficiency during this period of lower rates. “Timing is everything, especially with estate planning. The sooner you start preparing, the more control you’ll have over how your assets are distributed and taxed,” he advises.
A significant factor that will impact tax planning in the near future is the expiration of the Tax Cuts and Jobs Act (TCJA) at the end of 2025. The TCJA, enacted in 2017, brought significant changes to individual and corporate tax rates, standard deductions, and itemized deductions. For many taxpayers, the upcoming sunset of these provisions means a likely increase in taxes unless new legislation is passed.
“People often wait until the last minute to get their financial affairs in order, but that’s not a good approach,” says Boughner. “We advise clients to start now and plan for the worst-case scenario—assume that taxes will increase when the TCJA expires and adjust your strategies accordingly.”
This forward-thinking approach involves taking full advantage of the TCJA’s provisions while they are still in effect. For instance, businesses should review their tax structures, considering whether now is the time to make significant purchases or investments that could yield larger tax deductions under current law. Individuals might want to consider accelerating income or taking advantage of current lower rates on capital gains before these favorable provisions expire.
While rate cuts and impending tax law changes are on the minds of many, another significant event has shaped the financial landscape for numerous Americans: Hurricane Helene. The IRS has announced tax relief measures for individuals and businesses affected by the storm, extending the filing deadline for most returns to May 1.
Boughner urges those impacted by the hurricane to take this extended time to start their tax planning early, particularly if they are juggling other financial recovery efforts as a result of the disaster. The extension applies to personal income tax returns, business returns, and quarterly estimated tax payments, among other filing obligations.
“Don’t wait until year-end to start organizing your financial records, especially if you’ve been impacted by Hurricane Helene. Use this extra time to consult with tax professionals and ensure that you’re fully aware of all the relief options available to you,” he advises.
For those who have experienced damage or loss as a result of the storm, the IRS allows deductions for casualty losses, which may significantly reduce tax liabilities. However, understanding the full scope of eligible deductions can be complex, so working with tax experts is critical to maximize these benefits.
In the current economic environment, where both interest rates and tax policies are subject to rapid change, a well-thought-out financial strategy is more important than ever. Boughner emphasizes that this strategy should encompass all aspects of one’s financial life—from day-to-day budgeting to long-term estate planning—and should be adaptable as conditions evolve.
“You need to look at the bigger picture,” says Boughner. “This means reviewing everything: your taxable income, your retirement plans, your investment portfolio, and your estate plans. Each of these areas could be impacted differently by lower interest rates and upcoming changes to the tax code.”
He advises individuals and businesses to create a checklist of financial tasks to complete before the end of the year. This list might include reviewing retirement accounts, reassessing investment strategies, and consulting with professionals about estate plans and tax liabilities.
For those with significant assets or complicated financial situations, Boughner recommends meeting with advisers quarterly to ensure that plans stay on track and adjustments can be made as new developments—such as additional Fed rate cuts or legislative changes—arise.
As the Federal Reserve continues to adjust its policies, the financial markets remain volatile. Lower interest rates can boost economic growth, but they also bring a level of uncertainty that can be challenging for individuals and businesses alike. Flexibility and forward-thinking planning are essential to navigating these uncertain times, says Boughner.
“Monetary policy changes, tax law expirations, and even natural disasters like Hurricane Helene can all have profound impacts on your financial situation,” he notes. “By taking a proactive approach—whether that’s reassessing your investments, reviewing your tax strategies, or adjusting your estate plans—you can stay ahead of the curve and be better prepared for whatever comes next.”
Boughner’s advice resonates with a broader message: in an ever-changing financial environment, preparation and adaptability are key. By working closely with tax and financial advisers, individuals and businesses can ensure that they are not only protecting their wealth but also positioning themselves for future growth.
As we approach the end of the year, there is no better time to take stock of your financial situation and ensure that your strategies align with both current conditions and long-term goals. Whether it’s navigating the nuances of lower interest rates, planning for the expiration of the Tax Cuts and Jobs Act, or dealing with the aftermath of a natural disaster, smart, proactive planning is the key to financial success in today’s world.
