As the Trump administration prepares to hand over control of the White House and half of Congress to the Biden administration, tax partners say it is only natural for people to have new concerns about their future tax planning. Fortunately, financial advisors are also ready to offer advice.
Both Brett Neate, a partner at CPA and Beachwood consulting firm Zinner & Co., and Jennifer Gajda, a principal at Cleveland-based consulting firm Rea & Associates, said the most common fear they hear from clients during a change in administration is one the unknown.
“Things change every four to eight years, and you need to know when to either throw the tax on the streets, wait for what you think is a more favorable change, or speed up something, whether you’re speeding up income because it’s going to go away or push off prints, ”said Neate.
Given the Biden government’s interest in increasing tax rates for higher-income taxpayers, Gajda said that currently it makes most sense for people earning an annual income of $ 400,000 a year or more to hedge their bets.
“A big step for high earners,” said Neate, “especially for those with large portfolios, is a proposal to increase taxes on capital gains and qualified dividends.” People in lower tax brackets can be anywhere from 0% to 20%, and they talk about taxing this as if it were just a regular income, which can go up to 39.6%. So it can be a jump from 15 or 20% to more than double that. “
Gajda said some customers have expressed concern about the incoming administration’s proposal to lower the cap on inheritance tax exemptions from $ 11.5 million to $ 3.5 million.
“That brings a lot more people into the estate tax zone,” she said. “For the past four years with this high exemption, the state tax hasn’t been that worrying for many people because it wasn’t above that $ 11.5 million. But now I think a lot more people need to watch this. When the change happens, and that’s a big if. “
Both Gajda and Neate were also quick to point out that these changes have only been proposed for now, and that the House and Senate are currently layered between Democrats and the GOP and may not even come about depending on what Congress ends. In either case, it could take more than a year for either of them to materialize.
“I think there are a lot of potential tax changes that they’ll be talking about that may not happen until 2022 and possibly further out due to the 2022 halftime,” Neate offered. “I think nothing material other than corporate taxes, possibly the estate tax, will be some minor adjustments in the 2021 tax period.”
With that in mind, Gajda said that predicting the tax legislature’s movement is not an exact science, but an area that affects everyone.
“I think anyone can be affected by possible tax policy changes, but it’s often just kind of a waiting game to see where it will fall as the process of changing the tax law brings a lot with it,” she said. “I think we will definitely see significant changes in the future.”
Collin Cunningham is a freelance writer from Cleveland.