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

Three Hurdles Keeping You From Financial Planning

Posted by MRPR on Jun 25, 2021 12:00:00 PM

We recommend that our clients start their financial planning by creating a financial snapshot:

According to Savology, a written financial plan can lead to better money behavior. Their research found that households with a financial plan are 2.5x more likely to save enough for retirement. That’s a pretty good incentive, but there’s still icing on the cake. Of those who do set financial goals, 83% feel better about their finances after just one year. And yet 72% of Americans don’t have a written plan. So what's keeping them from financial planning?

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Topics: Tax Topics

Will Your Medicare Payments Increase in 2021?

Posted by MRPR on Jun 21, 2021 11:00:00 AM

For those of you updating your budgets for 2021, we’re providing an overview of the price increases you can expect for Medicare in 2021. Fortunately for most, costs aren’t growing much in the new year, but it’s important to keep on top of changes and how they affect your finances.

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Topics: Tax Topics

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

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

New Proposed Regulations On Gifts and Estate Transfers

Posted by Louis DiSarno, CPA on Aug 31, 2020 8:00:00 AM

The Tax Cuts and Jobs Act (TCJA) of 2017 added many new provisions to the tax code. Taxpayers with larger estates initially saw a benefit from the change to the lifetime exclusion for gift and estate taxes. It increased the amount for each taxpayer from $5 million to $11 million, adjusted for inflation. (For 2019, the indexed amount is $11.4 million.) However, tax practitioners saw a catch: after 2025, the provision will sunset and the lifetime exclusion per taxpayer will revert back to $5 million. Worse yet, it was unclear what would happen to taxpayers who gave gifts that make up this extra $5 million provided by the TCJA. Thankfully, the IRS has finalized Regulation 106706-18, which provides more clarity around gifts and estate transfers. Let's take a look at what you should know if you're worried about being taxed for your generosity.

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Topics: Tax Topics, Accounting Hot Topics

PPP Loan Forgiveness Application Explained

Posted by MRPR on May 22, 2020 12:07:30 PM

The Small Business Administration (SBA) has released a Loan Forgiveness Application for the Paycheck Protection Program (PPP), which was created by the Coronavirus Aid, Relief, and Economic Security (CARES) Act. The application and its instructions provide step-by-step guidance on calculating a borrower's PPP loan forgiveness amount. The application is much anticipated and helps clarify some of the questions we referred to in our previously published Top Ten Questions About the PPP blog -- but not all. The SBA and the U.S. Treasury have indicated they will continue to release guidance on the forgiveness calculation.

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Topics: Tax Topics, COVID-19 Updates

COVID-19 Preparedness & Response Plan Template

Posted by MRPR on May 22, 2020 10:28:03 AM

On May 21, 2020, Governor Whitmer announced Executive Order 2020-97 (amending Executive Order 2020-91) which indicates that all businesses or operations that are permitted to require their employees to leave the homes or residences for work under Executive Order 2020-92 (since amended to Executive Order 2020-96 and extended through June 12, 2020 under EO 2020-100) and any order that follows it, must, at a minimum:

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Topics: Tax Topics, COVID-19 Updates

CARES Act Offers Much-Needed Cashflow Relief

Posted by MRPR on May 15, 2020 11:53:16 AM

The COVID-19 pandemic has had far-reaching consequences across the entire business world and one of the most hard-hitting effects has been the reduction of cash flow throughout nearly all business lines. Invoices are not getting paid on time, monthly bills are accumulating, and for some businesses, (like restaurants and theaters) activity and cash inflow may be completely stopped. To provide some relief to businesses affected by the coronavirus, Congress recently passed the CARES Act which offers the possibility of a one-time infusion of cash in the form of tax refunds.

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Topics: Tax Topics, COVID-19 Updates

COVID-19 Updates, Guidance & Reminders [UPDATE]

Posted by MRPR on May 8, 2020 11:30:00 AM

We have gathered the notable updates, guidance, and reminders from the Department of Labor (DOL) and Internal Revenue Service (IRS) regarding the Families First Coronavirus Response Act (FFCRA) and Unemployment Insurance Agency (UIA).  

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Topics: Tax Topics, COVID-19 Updates