On October 6, 2020, Ani Hovanessian was quoted in Accounting Today on what taxpayers and their advisers can do to prepare for the tax implications of the 2020 presidential election, regardless of the outcome.
“The [Tax Cuts and Jobs Act] decreased the highest tax rate on income from 39.6 percent to 37 percent,” she said. “[Democrat presidential contender Joe] Biden has said he would like to increase it back up to 39.6 percent. In a similar vein, corporate taxes went from 35 percent down to 21 percent. President Trump would like to decrease that rate by an additional percentage point, while Biden said it should be increased to 28 percent.”
Likewise, the candidates take a different approach to capital gains rates, Hovanessian noted. “Biden would increase the rate for long-term capital gains for those making more than $1 million annually to match the highest income tax bracket at 39.6 percent, almost double the current rate of 20 percent. Including the 3.8 percent [Net Investment Income] surtax, the rate would top out at 43.4 percent. Contrast this approach with Trump’s proposal to decrease the capital gains rate to 15 percent, and also to index capital gains for inflation.”
Tax advisors should sit down with their clients and make sure they are aware of what might happen. She suggested: “Look at the assets they hold to determine if they should change their holdings. We don’t want them to rush into tax-motivated decisions without knowing their current liquidity. Even if there is a Blue Wave and accompanying changes in law retroactive to January 1, it could change back in a couple of years. Determine the client’s short-term and mid-term goals. If liquidity is important in the short term, see if they can convert to a Roth IRA so they can start taking distributions in the next couple of years.”
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