Planning during tax law changes

Column by Patricia Kummer
Posted 3/23/21

Most Americans just filed their 2019 taxes in October and here we are again at tax time. By the time we file this year, one-fourth of the year is gone and some opportunities along with it. This is …

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Planning during tax law changes

Posted

Most Americans just filed their 2019 taxes in October and here we are again at tax time. By the time we file this year, one-fourth of the year is gone and some opportunities along with it.

This is the time to start planning for potential tax law changes under the new administration if you are one of the affected groups. We do not know if all of these changes will be implemented or even in what year that will take place, but it is important to plan ahead and be prepared. The Biden Tax Plan calls for tax increases on incomes over $400,000, and higher capital gains tax on income above $1 million.

Only the top 1.8% of Americans earn more than $400,000 per year according to the IRS. Incomes over $1 million are less than one-tenth of 1% of U.S. wage-earners. While no one likes tax increases of any kind, these are not designed to impact the general population much. If you do fall in the top income levels, you should meet with your advisors soon to strategize the best opportunities.

Since the typical wage-earner is far below these income limits, you may actually benefit from new tax credits. This may include the Child Tax Credit increase from $2,000 to $3,000 and a $600 bonus credit for children under age 6. There is also a First-Time Homebuyers’ Tax Credit, and the Child and Dependent Care Tax Credit is expanded with a higher reimbursement rate. Childless workers over age 65 may benefit from the expanded Earned Income Tax Credit and there are renewable-energy-related tax credits to individuals.¹

The average wage-earner should still be planning for future tax changes. The current tax plan will sunset at the end of 2025. If there are no other changes before then, our tax code reverts back to higher brackets across the board. It is important to be planning for taxes year-round.

First, for filing taxes for 2020: If you are self-employed or have an opportunity to push more income into 2020, or even for those funding a self-employed retirement plan, consider voluntarily paying more taxes on 2020 income. This includes considering your final Solo 401(k) contribution to be a Roth instead of pre-tax. These final contributions are not due until your tax filing date this year.

While you are gathering your data for the tax preparer for last year, do some planning for this year as well. Try to determine what your income for this year will be. Do you have any opportunities to realize more income in this year? If not, then consider a Roth conversion, or bunching itemized deductions for future years. Some investors may want to think about realizing capital gains and avoid harvesting losses this year as well.

Remember “the only constant in life is change.”² There will be a lot more information coming on the new administration and tax law changes. In the meantime, there is a large policy agenda for this year that may supersede personal taxes. Biden has stated he is focused on getting the pandemic under control, passing another stimulus package, jobs creation, criminal justice reform and steps to reduce climate change. Biden also stated that foreign policy, immigration, infrastructure and voting rights are on his near-term agenda. When he finds time to get to the topic of taxes, his recent statements have centered on repealing the corporate tax cut first, creating incentives for products made in America, and then looking at income taxes on the wealthiest Americans. He has also pledged to improve health care and education and has vowed not to increase taxes on wage-earners under $400,000.³

Meet with your advisor early in the year to plan what is best for you and your family… and keep your seatbelts on.

1.The Tax Foundation 2. Hericlitus. 3. NPR

This article is informational only and is not designed to include all tax law changes.

Patricia Kummer has been a Certified Financial Planner professional and a fiduciary for over 35 years and is Managing Director for Mariner Wealth Advisors, an SEC Registered Investment Adviser. Please visit www.marinerwealthadvisors.com for more information or refer to the Investment Adviser Public Disclosure website (www.adviserinfo.sec.gov). Securities offered through MSEC, LLC, Member FINRA & SIPC, 5700 W. 112th Suite 500, Overland Park, KS 66211.

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