Election Year Tax Strategies

Given the current fragile economic environment in the United States, tax policy will take on added importance in the 2020 presidential election.  Should Joe Biden win the nomination here are some tax policy changes worth considering as it relates to your personal financial situation.

Biden has proposed raising the highest personal income tax rate back up to 39.60%, cap itemized deductions for the wealthiest Americans at 28.00%, phase-out the 20.00% deduction for qualified business income for upper-income taxpayers and limit “like-kind exchanges” for real estate investors.  He has also proposed eliminating the step-up in basis for inherited capital assets and ending favorable tax rates on capital gains for anyone making over $1 million in annual income. However, some of the more favorable proposals for low- and middle-income Americans are as proposed:

  • Expanding the child and dependent care credit to $8,000 per child (up to $16,000), and making it refundable and payable in advance.
  • Forgiving student loan debt and excluding the forgiven amount from taxation.
  • Expanding the work opportunity tax credit to include military spouses.
  • Enhancing tax breaks and access to 401(k) plans for workers who are saving for retirement.
  • Creating tax credits for small businesses that offer retirement plans for their workers.

To help shore up Social Security funds and benefit Senior Citizens he would make more income from wealthier Americans subject to the Social Security payroll tax. For 2020, wages above $137,700 are not subject to the payroll tax (the amount is adjusted annually for inflation). Biden would make wages above $400,000 subject to the tax.  Additionally, his plan calls for increased tax benefits for elderly Americans who pay for long-term care insurance with their retirement savings.

Some potential year-end tax strategies currently being considered should Biden win the nomination are as follows:

Realize long-term taxable gains in non-qualified accounts by 12/31/2020 at the favorable rates of either 0.00%, 15.00% or 20.00% depending on your income.

“Front-load” your charitable gifting to minimize your taxable income and transfer appreciated assets from your estate and lower your overall estate value.  This can be done utilizing a donor-advised fund.  The donor-advised fund account offers a unique and flexible way to manage your charitable giving. With this account, you can:

  • Realize same-year tax benefits if you itemize deductions
  • Potentially eliminate capital gains tax on the contribution of appreciated non-cash assets and investments
  • Give when it is convenient and meets your charitable goals
  • Manage your giving online
  • Create a lasting charitable legacy

As always it is important to consult your tax, estate and financial professionals to determine the most effective strategy that will meet your needs and objectives.  If you wish to review your specific situation with our office, please feel free to contact us.  There is no fee nor obligation for the initial consultation.