Potential Election Tax Changes and Planning Opportunities

Potential Election Tax Changes and Planning Opportunities

As we head into the final stretch of a historic year, we are days away from an election that holds the potential for meaningful legislative and regulatory changes. We are pleased to share the recordings of two unique webinar panel events we hosted recently with some of Seattle’s top CPAs and estate planning attorneys.

These panel conversations are meant to be politically unbiased and are intended to provide an overview of the current laws, proposed changes, and planning opportunities.

Income Tax Panel

Link to Webinar

Highland’s Mike Milojevich moderated an interactive discussion featuring:

Key Proposed Changes for Individuals

  • Increase top Federal rate to 39.6% (currently 37%) on ordinary income in excess of $400,000
  • Increase top long-term capital gains rates to 39.6% for realized capital gains in excess of $1,000,000
  • Reapply Social Security payroll tax of 12.4% on wages in excess of $400,000 (half paid by employee / half by employer)
  • Cap benefit of itemized deductions to 28% and bring back Pease limitation, which could further reduce itemized deduction
  • Reduce qualified retirement contributions from a top-line deduction to a flat-rate tax credit (potentially 26%)

Key Planning Considerations for Individuals

  • Frontload itemized deductions into 2020 to maximize their benefit
  • Accelerate income into 2020 by doing such things as exercising vested stock options, Roth IRA conversions, and taking more substantial IRA distributions prior to year-end.
  • Realize capital gains prior to year end
  • With the CARES act allowing deductions of up to 100% AGI for charitable gifts of cash in 2020, those over age 59 ½ could consider taking IRA distributions and gift the proceeds to charity

Key Proposed Changes for Businesses

  • Increase corporate tax rate to 28% and establish minimum tax on book income
  • Phase out of Qualified Business Income deduction of 20% for pass-through businesses with income over $400,000

Key Planning Considerations for Small Businesses

  • Accelerate income into 2020
  • Push deductions into 2021
  • Be aware of potential tax impacts of employees working virtually from other states

Estate Planning Panel

Link to the Webinar

Highland’s Ben Johnson moderated an interactive discussion featuring:

Key Proposed Changes for Estate Planning

  • Federal estate tax exemption could be cut in half ($11.58M to $5.79M)

Key Planning Considerations for Estate Planning

  • Make material gifts to use the extra exemption with the caveat that you must give more than $5.8 million to use any of the extra exemption at stake. Depending on your goals, this may include different assets and utilize various Trusts for the benefit of individuals and/or charity.
  • If you are subject to estate tax, you may want to consider making material Roth conversions to avoid future income tax for heirs.
  • Traditional IRAs/401ks make great candidates to leave to charity at death vs. taxable assets after the SECURE Act passed in 2019. You can leave outright to charity or in a split gift format, leaving part to heirs and part to charity.
  • If you are leaving any of your retirement plans in trust, you may need to update your documents due to changes resulting from the SECURE Act.

It is important to note that proposals are not policy and it is uncertain whether any or all proposals would be enacted even if a change in administration occurs.  At Highland, we help our clients be in a “ready-position” for any changes that may occur. Please contact us if we can be of help to you.

Ben Wicks
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