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Set Your Financial Priorities Right Now
(Tuesday, Sept. 15, 2020; 10:30 PM EST) As a professional advisory firm, perhaps the most job important service we provide is as a "choice decider," someone you can rely on to prioritize your best choices for building your wealth and planning your future.
As a financial choice decider, it's important to tell you that perhaps the very best choice you could make right now is to pay attention to tax planning opportunities, and to show you choices you must make by the end of 2020.
Amid the stock market's headline-grabbing gyrations and record-setting performance, focusing on tax planning may seem counterintuitive but it's a strategic imperative. Here are three examples of potential tax problems that could arise and for which you need to be prepared before the end of the year:
- Rather than paying a higher capital gains tax rate expected under a Joe Biden Administration, now is the time to consider selling a highly appreciated asset by December 31, 2020. President Donald Trump, according to the Tax Foundation, has not formally announced a capital gains tax policy but has publicly mentioned lowering the capital gains tax from 20% to 15%. With the U.S. Government's expenses exceeding revenue from taxes for many years and the Covid pandemic unexpectedly weakening the nation's balance sheet , planning now for likely higher capital gains taxes is prudent. This applies to stocks and other appreciated investments.
- Now would also be a good time to consider selling property â€“ like real estate â€“ on an installment-loan basis to your children or grandchildren. Depending on the national election results, you might elect not to consummate the sale. You have until October 15, 2021 to decide â€“ long after the election is settled and the Biden or Trump Administration may have enacted a new U.S. tax plan.
- In 2020, you're not subject to payroll taxes on wages and salary exceeding $137,700. Under Biden's plan, earnings of more than $400,000 would be subject to the 12.4% payroll tax. Meanwhile, President Trump has called for forgiveness for the September 1 through December 31, 2020 employee-side payroll tax deferral. To sidestep these potentially higher taxes, consider establishing an S-corp by the end of 2020 to reduce the payroll tax liability should your earnings exceed $400,000 and thus be subject to the 12.4% payroll tax.
If your family's situation involves an installment sale to the next generation or if you earn more than $400,000 a year, immediate action should be taken because implementing a solution may require drafting legal documents and estate and tax lawyers are expected to be busy between now and the end of 2020.
Please contact us about your personal situation, as the tax and other issues involved are substantially dependent on your personal circumstances.
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