While we transition from the current administration to the next, we continue to urge clients to “plan” but not “act” solely on political predictions. Most importantly, we want clients to be intentional about their long-term goals, which should still be the driving factor in their decision making, regardless of who sits in the oval office. With that in mind let’s examine some planning opportunities moving forward.
Impact on Tax Planning
If Republicans do retain control of the Sente, the progressive tax changes proposed by President elect Biden will likely have to be toned down, at least until midterms.
The potential of a divided government suggests that the Tax Cuts and Jobs Act of 2017 will likely remain intact. Gift and estate tax exclusion amounts will likely remain high, historically speaking, for some time. This means that in 2020 clients can give away $11.58 million tax-free. This amount is scheduled to increase in 2021 to $11.7 million.
It is expected that these limits will remain until at
–least mid –terms (possibly until their scheduled sunset in 2026). At that time exclusion will automatically revert back to $5 million per individual. This makes gifting strategies even more important. You can read about these strategies here.
A divided government also means that the top tax rate is likely to remain at 37% until the TCJA sunsets in 2026 and goes back up to 39.6% Given the current deficit and increased spending through stimulus it is hard to imagine tax rates decreasing.
With tax rates holding steady, year-end planning should involve deferring income and gains into future years, while accelerating expense and deductions into the current year. Also consider exploring tax-loss harvesting opportunities, which involve selling investments to offset any taxable gains during the year.
Three Wealth Planning Strategies to consider
If you would like to discuss planning opportunities post-election give us a call at 610-825-3540. Also, be sure to speak with your tax preparers before moving forward with any tax-related strategies.
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