2020 Year-End Tax Planning

 

The “final curtain” may not quite have fallen yet… But most appearances indicate Joe Biden is destined to be the 46th President of the United States.

In my last couple of updates, I’ve covered how changes to the tax code under the Biden administration might impact your taxes. And again, “Might” is the operative word here…

The President-Elect is facing a tough, uphill battle in hopes of passing ANYTHING in the Republican-controlled Senate. And even Biden’s far-left-leaning Democratic compatriots in the House of Representatives could potentially erect roadblocks, too.

But all of this said, it’s fair to assume Biden will get some measure of his tax agenda pass into law. So the question becomes, what now?

Here are some smart tax planning strategies you can implement before the close of 2020 to minimize your tax liabilities…

Estate + Gift Taxes

President Trump’s Tax Cuts + Jobs Act made significant changes to estate and gift taxation regulations…

The current gift exclusive allows individuals to pass on up $11.58 million and couples to pass on up to $23.16 million to their heirs before the 40% federal estate tax takes effect.

Biden, conversely, is looking to roll back estate taxes to 2009 levels. This would include capping gift tax exemptions at $3.5 million. And increasing the federal estate tax rate to 45%.

Thus, if you’re planning to pass on a sizable inheritance, it may be worth considering transferring those funds now to avoid future taxation.

Income Taxes

Currently, there are seven income tax brackets: 10%, 12%, 22%, 24%, 32%, 35%, and 37%.

Under Biden’s tax proposal, these seven brackets would remain in place, but the highest bracket would jump from 37% to 39%.

Not a tremendous amount can be done on this front so late in the fiscal year. However, if you’re in the highest bracket and anticipating a future bonus or other additional income, if possible, it would be wise to intake that money this year and avoid the possibility of added income taxes in the future.

Capital Gains

Your Capital Gains tax rate currently hinges on your income, and ranges from 0% to 15% for those earning less than $441,451, and climbs to 20% for those earning above that mark annually.

Biden’s plan, however, looks to raise Capital Gains taxes for those with an annual income over $1 million. The increases would make Capital Gains taxes the same as income tax for those in the highest bracket. That rate is now at 37%, and could possibly rise to 39% if Biden ultimately has his way.

With Biden’s potential revisions looming on the horizon, those with seven-figure annual incomes would be wise to consider selling assets subject to Capital Gains taxes now. Otherwise, you’re looking at a possible 20% increase in your Capital Gains taxes.

1031 Exchange

A long-heralded real estate investment tax shelter, the 1031 Exchange allows property investors to avoid paying Capital Gains taxes on “like-kind real estate trades.”

In other words, if you sell a property and invest the proceeds into another property of equal or greater value, you pay zero Capital Gains on the sale.

Biden is proposing to eliminate the 1031 Exchange Program for those earning an annual income greater than $400,000.

Given the potential for this program’s sun-setting, now may be your last chance to take advantage of a 1031 Exchange if you’re in the highest income bracket.

Other Trump Era Tax Reforms Potentially On The Chopping Block

Biden suggested a complete repeal of President Trump’s Tax Cuts + Jobs Act in early campaign rhetoric.

Such sweeping revisions, however, seem unlikely. Moreover, Biden’s proposed tax plans appear to take aim at eliminating certain elements of the Tax Cuts + Jobs Act.

But with this said, elements of President Trump’s Tax Cuts + Jobs Act program in peril include…

  • Bonus depreciation
  • Carried interest
  • Qualified business income deductions
  • And qualified opportunity zone investments

We’re Still At The Bottom Of The Hill…

As I already noted, Biden has a looooooong way to go if he hopes to get any of this done. Not least of which is certifying his victory and actually claiming the Presidency. And beyond that, he’s facing a plethora of hurtles in congress.

But in reaching the office of President, Biden is one step closer to enacting sweeping changes to the tax code.

Have Questions About How Biden’s Plans Could Impact Your Taxes?

At this point in time, the situation is very much up in the air. But if you’re looking to make some major financial moves before year-end, please feel free to get in touch for further discussionI’m here to help!