Post-Election Tax Planning
In our prior alert, “Tax Planning Takes on Even Greater Significance This Election Year”, we discussed several income and estate tax proposals whose future depended, in part, on the outcome of the Presidential election.
Income tax proposals include raising individual tax rates for high earners, raising the corporate income tax rate, raising capital gain tax rates, and treating capital gains as ordinary income for those with income in excess of $1 million. Estate tax proposals include lowering the lifetime estate and gift tax exemptions and eliminating the “step up in basis”, which has served to reduce income taxes on the sale of inherited assets.
Now that Election Day has come and gone, we have a better, although far from certain, sense of whether any of such proposals will come to fruition. While election results are not technically official, as of the writing of this article on November 21, 2020, former Vice President Joe Biden is the projected president-elect. Democrats will likely continue to control the U.S. House of Representatives. Senate control will not be determined until after two Georgia run-off elections in early January 2021.
Without a clear picture of which party will control the Senate, it is not possible to predict whether the income and estate tax proposals mentioned above will become law. Should Democrats control both legislative branches, they will have the necessary votes to potentially make more sweeping changes to existing law. However, as we previously noted, we anticipate there will be pressure to raise taxes regardless of which party is ultimately in power due to the elevated national debt and anticipated Covid-19 related costs.
As such, and given the fact that certain provisions of the 2017 Tax Cut and Jobs Act were not permanent, including the increase in the estate and gift tax exemptions and the decrease in individual tax rates, we continue to implement the strategies discussed in more detail in our September 2020 alert: https://www.wms-partners.com/insights/tax-planning-takes-on-even-greater-significance-in-this-election-year.
There are many additional strategies available to alleviate the impact of possible income and estate tax law changes, including reducing positions in low basis stock, increasing charitable giving, Roth IRA conversions, and others depending upon individual circumstances. As always, should you have any questions or concerns regarding these or other topics, please reach out to your WMS Advisor.