MRPR Blog

Tax Planning for the Biden Administration

Posted by Avantax℠ on Sep 16, 2021 12:50:49 PM

Tax Planning for the Biden Administration

Potential Strategies to Combat Increased Taxes

Many individuals are stuck in a holding pattern as they wait to see what impact the Biden Administration will have on tax regulations. The President has shared what he’d like to see happen, but until those proposals are put into law, it can be hard to know what strategies to take — if any.

From a pure tax planning perspective, no changes to current regulations would be ideal, but even knowing what changes to expect would put filers in a better position, whereas new regulations in late 2021 would offer little opportunity to take action to offset rising taxes.

In several recent articles, Jeffrey Levine, CFP®, CPA discussed the proposed tax changes and potential strategies to combat any adverse effects. Levine is the CPO of Buckingham Wealth Partners and the Lead Financial Planning Nerd for the popular financial website www.Kitces.com.  Here are just a few of the more significant changes that could impact your net income going forward.

Increased Taxes for Salary Earners Making $400k and Over

If the Biden Administration has their way, an annual income of over $400k will propel individuals and those who are married and filing jointly into a 39.6% tax bracket as compared to the current 35% bracket.

Potential Planning Strategies:
Accelerating Income – To offset a potentially higher tax bracket, Levine recommends taking advantage of current tax laws while they last. That means accelerating income in 2021. You may have a higher tax bill this year, but you could counterbalance even greater tax liabilities down the road.

If you’re a small business owner, you may be in a better position than some to accelerate income and also put off anticipated business costs to 2022. That way you’ll have more deductions to compensate for a potentially higher tax bracket next year. There is one caveat to this approach, however. That’s the potential for the Biden Administration to put a cap of 28% on potential itemized deductions. If this piece of legislation goes through, then taking partial deductions this year may also be necessary to maximize your ability to write off expenses.

Roth Conversions – Converting a traditional IRA or 401(k) into a Roth IRA is one way you can capitalize on a lower tax bracket now if you’re an over $400k earner. Then, if taxes are increased in the future, you’ll already have your assets converted to a tax-free account.

Increased Tax Rates for Long-Term Capital Gains and Qualified Dividends

Those earning over $1 million a year could end up paying ordinary income tax rates on long-term capital gains and qualified dividends.

Potential Planning Strategies:
Investments with Little Tax Implications: Levine recommends looking for minimal tax investments like municipal bonds, avoiding investments that produce dividends and regulating annual sales to stay under the $1 million cap as just a few ways to help minimize your tax liability.

Changes to Estate and Gift Planning Legislation
Another proposal that’s looming on the horizon is the reduction of the estate and gift planning exemptions put into effect during the Trump presidency. Current rules allow for $11.58 million in tax-exempt wealth
transfer per person, whereas proposed changes will revert that amount to approximately $5.85 million per person.

Potential Planning Strategies:
Maximizing Gifts in 2021: One option, per Levine, is to take advantage of the current rate and donate $11.58 million per individual this year. That’s a solution that takes careful planning — especially for those whose assets are tied up in a business or those with barely enough assets to cover the gift and have enough to live on for the remainder of their lives.

“Stretch” Donations for Couples: Another strategy is to max out your gift this year, while your spouse waits until later. You’ll donate $11.58 million, and then if the exemption goes down, your spouse will still be able to gift $5.85 million later. If you split the $11.58M evenly this year and the exemption goes down, you’ll each have effectively eliminated any opportunity for more gifting in later years.

Should You, or Shouldn’t You?
So how do you plan for taxes when you don’t know what regulations will change if any? It’s a question on the minds of many investors trying to maximize their net revenue. On the one hand, if President Biden’s tax proposals don’t go into effect, you might make unnecessary changes that could trigger additional taxes. On the other hand, if the proposals become law, you could regret not taking action while you’re in a more optimal tax situation.

Contact Us for Tax-Focused Financial Planning Solutions
We can help you make sense of the planning options available to help offset anticipated increases during the next presidential term — and whether you should take action now or stay the course. Timing is
everything when it comes to taxes, so contact us today to schedule an appointment!

Sources:

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Topics: Tax Topics, News

​MRPR Makes Crain's Cool Places to Work 2021

Posted by MRPR on Aug 23, 2021 12:22:21 PM

We're excited to announce that MRPR has made Crain's 2021 Cool Places to Work list in Michigan. MRPR ranks 72 among 100 companies recognized by their employees for having outstanding workplace culture.

 

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Topics: News

American Rescue Plan Provides Additional Tax Benefits

Posted by MRPR on Mar 12, 2021 2:12:22 PM

 

On Thursday March 11, 2021 President Biden signed the American Rescue Plan Act of 2021, H.R. 1319. This is the third major relief package to help Americans who are struggling with losses and setbacks from COVID-19 related government lockdowns and countermeasures.

Following the $1.7 trillion Coronavirus Aid, Relief, and Economic Security Act (CARES) of March 2020, and the $900 billion Consolidated Appropriations Act (CAA) of December 2020, the $1.9 trillion American Rescue Plan Act “the Act” provides several tax benefits for individuals and businesses alike.

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Topics: Tax Topics, News, COVID-19 Updates

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Posted by MRPR on Jan 12, 2021 12:14:05 PM

On Saturday, January 9th the Treasury and the SBA released new PPP guidance and application forms. The new guidance includes overviews of the First and Second PPP draws and the Revised PPP1-Borrower-Application-Form and Second-Draw-Borrower-Application-Form.

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Topics: Business Planning & Operations, News, COVID-19 Updates

Consolidated Appropriations Act of 2021 Offers Help to Businesses and Individuals

Posted by MRPR on Dec 22, 2020 7:00:00 PM

Christmas came early this year! As part of the Consolidated Appropriations Act of 2021, Congress has passed a stimulus package (“COVID-related Tax Relief Act of 2020”) that has provided a variety of useful provisions and clarifications for individual and business taxpayers alike. While not as comprehensive as the CARES Act passed earlier this year, it provides much-needed aid.

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Topics: News, COVID-19 Updates

Large SBA Loans Require SBA Form 3509

Posted by Denise Thompson, CPA on Dec 16, 2020 2:02:20 PM

Under the Paycheck Protection Program (PPP), borrowers who received a PPP loan in excess of $2 million, whether from a single loan or the combined total (together with affiliates), have known for a while that their loans would receive increased attention from the Small Business Administration (SBA). To that end, the SBA Form 3509 must be submitted for loan amounts of $2 million or greater.

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Topics: Accounting Hot Topics, News, COVID-19 Updates

Michigan Provides Sales Tax Relief for Certain Taxpayers

Posted by Louis DiSarno, CPA on Dec 15, 2020 4:04:53 PM

The Michigan Department of Treasury has granted a 31-day waiver for penalty and interest for the late reporting of sales, use, and withholding (SUW) taxes ordinarily due on December 20, 2020. Because of this waiver, any SUW returns and payments for affected businesses can be made without interest or penalty until January 20, 2021.

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Topics: Tax Topics, News

Michigan Small Businesses Get $15K From Relief Initiative

Posted by Greg Zink on Dec 7, 2020 10:50:52 AM

On November 30th, the MEDC announced that the Michigan Strategic Fund approved the funding of up to $10 million to assist small businesses disproportionately impacted by COVID -19. The “Pure Michigan Small Business Relief Initiative” will utilize Federal CARES Act monies to award up to $15,000 each to Michigan small businesses.

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Topics: News, COVID-19 Updates

The Families First Coronavirus Response Act H.R. 6201

Posted by MRPR on Mar 20, 2020 6:23:13 PM

On Wednesday, March 18, 2020, the Families First Coronavirus Response Act H.R. 6201 was signed into law by President Trump after the Senate passed the bill by a 90-8 vote. The Act contains provisions for paid leave for employees, tax credits for business owners, COVID-19 testing, unemployment insurance and additional funding for government programs. The bill takes effect no later than April 1, 2020, and it will sunset on Dec. 31, 2020. 

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Topics: News, COVID-19 Updates

Michigan Offers Relief for Sales, Use and Withholding Tax

Posted by MRPR on Mar 19, 2020 4:56:00 PM

As the federal government and state governments across the country struggle to deal with the ongoing COVID-19 (Wuhan coronavirus) pandemic, state tax agencies are offering relief to taxpayers as the economy adapts to the social distancing requirements prescribed by the Centers for Disease Control (CDC). Michigan is following suit by extending certain protections to affected taxpayers.

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Topics: News, COVID-19 Updates