Dear WZ Clients, Business Associates and Friends,
With the upcoming presidential election in November, now is the time for you to revisit your tax planning strategies.
The two most important items to focus on now are income taxes and estate planning.
On the income tax side, there could be a raise on the top individual income tax rate to 39.6% from 37% and applying it to taxpayers with taxable income over $400,000, according to an analysis from the Tax Policy Center.
There could also be an increase to payroll taxes, per the Tax Policy Center, as the limit on the 12.4% portion of the Social Security tax which is shared by both the employee and employer may increase to $400,000 (instead of the current $137,700).
Additionally, now is the time to look at the impact of changes to rates that could be boosted on long-term capital gains and qualified dividends to 39.6% , the same top rate as ordinary income for those with income over $1 million, according to the Tax Foundation.
The tax rate applies when you sell investments that you have held for at least a year. Selling appreciated investments, as well as converting traditional individual retirement accounts to a Roth and paying the income tax at a lower rate now may be a good idea if taxes may rise after the election.
Estate taxes could also be raised back to the historical norm. The Tax Cuts and Jobs Act roughly doubled the amount that you can transfer to other people, either at death or as a gift during life without facing the 40% estate and gift tax. The gift and estate tax exemption are $11.58 million per individual in 2020.
The “step-up in basis,” a provision in the tax code that allows an individual to hold onto an asset for years, watch it appreciate and then bequeath it to an heir at death may also change where there could be taxation on unrealized capital gains in the asset at death, which essentially would do away with the “step-up in basis” provision.
Today, wealthy households are likely to use gifting strategies to head off any potential changes that the election may bring. This can be as simple as giving assets to a trust or outright to kids or grandkids while using the exemption.
While you do not want to give away your assets prematurely, it doesn’t hurt to start talking to your financial advisor about these potential areas of change.
AS ALWAYS, WAGNER & ZWERMAN IS HERE TO ANSWER ALL OF YOUR QUESTIONS AND CONCERNS. WE ARE ALL IN THIS TOGETHER.
STAY SAFE AND HEALTHY
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Best,
WZ Partners
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