Knowledge and Insights

As year-end approaches, it is a good time to think about planning moves that may help lower your tax bill for this year and possibly next. Year-end planning for 2020 takes place during the COVID-19 pandemic, which in addition to its devastating health and mortality impact, has widely affected personal and business finances. New tax rules have been enacted to help mitigate the financial impact of the disease, some of which should be considered as part of this year’s planning.  To further add to the complexity of year-end planning, we have the uncertainty of the election and potential changes in the national political arena which could impact future tax legislation.

Defer income or accelerate?

When comparing the two tax plans, under President Trump’s proposed tax plan, according to his campaign platform www.donaldjtrump.com, he is proposing to make the current tax rates permanent, provide tax cuts for individuals, and make no changes to capital gains rates.

Per his campaign platform www.joebiden.com, Vice President Biden’s plan proposes to raise individual tax rates to 39.6% and raise capital gains rates to 39.6% for individuals with income over $ 1.0 million.

The challenge with anticipating potential tax law changes is the uncertainty of when they will pass and ultimately what legislative changes will prevail as they make their way through Congress.

Things you need to consider based on your individual situation is whether to accelerate income into 2020 or defer.  Areas open to planning include:

• Capital gain recognition in 2020 or tax loss harvesting?
• Taking advantage of the waiver in 2020 of the Required Minimum Distributions (RMDs) that usually must be taken from an IRA or 401(k) plan (or other employer-sponsored retirement plan).
• Acceleration of ordinary income into 2020?
• Accelerating or bunching charitable and medical expenses. In 2020, certain charitable deduction limitations have been raised from 50% of AGI to 100% of AGI.
• Understand the tax impact of the CARES ACT incentives and the PPP Loan on your small business.

Consider Estate Planning to Maximize the Use of the Lifetime Exclusion

There has always been a time clock on the increased Lifetime Exclusion for estate planners.  Current legislation sets the Lifetime Exclusion amount at $ 11.5 million per person.  This amount is due to sunset in 2025, resetting the exclusion to $ 5.0 million per person.  The IRS has released guidance in the form of proposed regulations that would not claw back lifetime gifts in excess of the $ 5.0 million exclusion made before the reset.  Many people are considering that timeline in their planning.  But with the uncertainty of the tax law post-election, the concern is that planning window could grow much shorter or completely close before 2021.

Trump’s plan proposes to make the increased exemption permanent, thereby eliminating the sunset provision.  Biden’s plan calls for restoring the estate tax rates and exclusions to historic norms, which could mean resetting the exclusion to $ 5.0 million or $ 3.5 million per person.

We strongly recommend that if you are comfortable with lifetime gifts in excess of $ 5.0 million, that you start the planning process immediately and be willing to implement it sooner than originally considered. In this time of uncertainty, we recommend the following:

• Always consider your planning with a long-term view – tax strategies should not overtake your long-term goals;
• Be proactive – we can work with you to set up a plan with decision points that provide for both flexibility and alternatives.

The above are just some items to consider.  With all the uncertainty we encourage you to contact us sooner rather than later to try to assist you in evaluating your planning options.  Contact our team at [email protected] or 609-689-9700 so we can help you work through strategies that make the most sense for your unique situation. We hope you continue to stay safe and well through the holiday season.

DISCLAIMER: This advisory resource is for general information purposes only. It does not constitute business or tax advice, and may not be used and relied upon as a substitute for business or tax advice regarding a specific issue or problem. Advice should be obtained from a qualified accountant, tax practitioner or attorney licensed to practice in the jurisdiction where that advice is sought.