Planning Now for Possible Rate Changes Might Mean Big Savings

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Planning ahead for possible changes in tax policy could positively impact your wealth management goals.

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It’s an election year, and that means uncertainty for future tax policies. Should former Vice President Joe Biden and the Democrats sweep to power in November, taxpayers might want to plan this year for several proposals the candidate has offered. Biden has proposed:

  • Restoring tax brackets for income above $400,000 to where they were before the 2017 Tax Cuts and Jobs Act
  • Phasing out the qualified business income (QBI) deduction for taxpayers above $400,000
  • Adding payroll taxes of 12.4% on taxpayers with earnings greater than $400,000
  • Taxing capital gains and qualified dividends at ordinary income rates as high as 39.6% for taxpayers with income above $1 million
  • Capping the tax benefit of itemized deductions at a 28% rate

For incomes above $400,000: Given the possibility of a higher income-tax bracket, additional payroll taxes and loss of a QBI deduction in 2021, it might make sense to accelerate income into 2020.

For incomes over $1 million: You might want to recognize capital gains in 2020 on assets that you plan to dispose of soon. Examples include diversifying a concentrated stock position, selling a highly appreciated rental property or selling a closely held business. The potential tax in 2020 vs. 2021 could be the difference between 20% and 39.6%.

It also might be advantageous to accelerate charitable deductions in 2020 and lock in the top marginal tax rate benefit of 37%. The same deduction in 2021 may only save the taxpayer $0.28 on the dollar if the benefit is limited to 28%.

For more information, go to: Managing Wealth Amidst Potential Tax Policy Changes.

This information is for general information use only. It is not tailored to any specific situation, is not intended to be investment, tax, financial, legal, or other advice and should not be relied on as such. AMG’s opinions are subject to change without notice, and this report may not be updated to reflect changes in opinion. Forecasts, estimates, and certain other information contained herein are based on proprietary research and should not be considered investment advice or a recommendation to buy, sell or hold any particular security, strategy, or investment product.

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