Year-End Planning For 2020
As of the November 23rd letter from the Administrator of the U.S. General Services Administration to President-Elect Joe Biden allowing the start of the presidential transition, the 2020 Presidential election is (mostly) decided in favor of President-Elect Biden. This article will address what this transition may mean for your tax, financial and estate planning and what you may want to consider doing before year end.
Unfortunately, no one I know has a crystal ball and the ability to predict what the future will bring, but we do have certain facts to support the notion that tax laws will likely change during the Biden administration. Of course, the speed with which these changes will occur depends a lot on the make-up of Congress. While the Democrats continue to hold a majority in the House of Representatives, control of the Senate hinges on the Senate run-off elections in Georgia taking place on January 5, 2021. If both Democratic candidates win their respective elections, the Senate will be divided 50/50, with Vice-President-Elect Kamala Harris casting the deciding vote in the event of a tie. In this scenario, it is likely that we could see some changes as early as January.
What do we know about these potential changes? One thing we know is that the current budget deficit is a little over $2.8 trillion and constitutes a larger percentage of gross domestic product than it did during the Great Recession of 2009. Other things we know are the details of Biden’s tax policy. Biden’s plan includes: (1) raising the highest marginal tax rate from 37% to 39.6%; (2) taxing long-term capital gains and qualified dividends at 39.6% (up from 20%) on income above $1 million; (3) eliminating the step-up in tax basis for capital gains; (4) reducing the estate tax exemption to $3.5 Million (from $11.58 Million) and raising the rate to 45% (from 40%).
With this information as a back drop, the following is a list of some planning ideas to consider:
- Although the CARES Act provides a respite from having to take Required Minimum Distributions (“RMD”) from qualified plans and IRA’s in 2020, some may want to consider taking their RMD before year end anyway if they think income taxes will increase.
- If your income was lower in 2020 than normal, either due to loss of wages or not taking your RMD as referenced above, consider converting some of your IRA to a Roth IRA for future tax savings.
- If you ordinarily give to charity, consider giving cash this year because the CARES Act eliminated the 60% of AGI limit for 2020 for “qualifying cash contributions.” In 2020, you can give up to 100% of your AGI.
- Those planning to sell appreciated capital assets in 2021 should consider selling them in 2020, especially if the sale will result in more than $1 Million in income.
- Those with large estates should consider giving assets away now while the estate exemption is high.
The most important thing to remember is not to wait. Talk with your advisors as soon as possible about some of these and other planning strategies that are uniquely tailored to your situation.
Ask Winston: Hypoallergenic Pets
Hook Law Center: Winston, is there really such a thing as hypoallergenic dogs?
Winston: My name is Winston and I belong to Jennifer’s brother-in-law’s family and not to Jennifer because (you guessed it!) Jennifer’s daughter is allergic to dogs! Well, I am here to tell you that my sister is also allergic to dogs and she has been absolutely fine since our parents brought me home. How is this possible? Well, I am a Miniature Golden Doodle and my breed of dog is considered to be “hypoallergenic.” While there is no such thing as a truly hypoallergenic dog, there are many options to consider that allow you to own a dog without triggering an allergic reaction. For example, there’s recent research indicating that people who are allergic to a specific dog protein called Can f 5 might only react to intact male dogs and not females or neutered male dogs. If you are not one of the lucky few who are only allergic to Can f 5, there are a few steps you can take that may allow you to have a dog in your home: (1) restrict your dog to only certain parts of your home; (2) keep a HEPA cleaner running; (3) give your dog weekly baths; (4) take medications to manage your symptoms; or (4) have immunotherapy to desensitize you to dog allergens.