Tax Planning December 2020: Biden vs Trump
There is a lot going on in terms of to sorting out the Presidential election right now. Regardless of who becomes President, January 1st is approaching fast and there are still opportunities to take action to do some tax planning before year end.
When we’re looking between now and the end of the year there are stark differences between the Trump and Biden Regardless of who you’re predicting is going in as President there are some things that you need to consider now.
While Biden is posturing for higher taxes, Trump is looking at how do we can further cut the tax structure. One of the things that Biden is looking at is raising the individual tax rate to 39.6%. As horrible as it seems, this tax hike is just putting the tax rate back to where it was in 2017.
When we move into capital gains. There are a lot of stark differences. Donald Trump plans to seek to cut the top capital gain rates by executive action to a maximum of 15% he would then consider indexing the capital gains for inflation. He is also looking at extending the current tax benefits that are set to expire past 2025. Joe Biden, on the other hand, is looking at getting rid of capital gain tax rates for individuals making over $1 million. Everyone that is a part of that income threshold will end up having their capital gains taxed at the top ordinary rate (presumably 39.6%). So even though he’s talking about a top rate of 39.6%, it’s counterbalanced if you invest in certain projects that the government identifies, there will be ways that you can mitigate that that tax rate.
In the area of the wealth tax right now, neither Donald Trump or Joe Biden support wealth tax going in place.
Joe Biden is going to be looking at capping the itemized deductions that 28%. So, he wants to take us back to what the AMT rates and individuals earning over $400,000, you’re going to get a basically lose benefit for all of those itemized deductions.
The number one thing you need to realize is that you have November, December, to do something, and then after December, you’re going to lose the ability to do planning for 2020. If you’re planning on, as the media is reporting, Joe Biden going in, that means your tax rates will be going up for 2021. Whenever you see rates going up, you want to try to accelerate income into the lower tax year and deferred deductions into the higher tax year. You can sell stocks and take gains this year and right now is the time to do that- to reset the basis on some of your long-term capital gains. Also, something a lot of individuals are doing right now is gifting the property out to charities. That way if you have a philanthropic goal, it’s better for you to give the money to into a into charity and you’ll get the fair market value as a deduction on your return. Under current law, if you contribute capital gain property, you can get up to 30% of your adjusted gross income on your income tax return as a deduction. If it’s in cash, you can get up to 60% as a deduction as long as the gifting is made to a public charity. There are special rules if you are giving to private foundations. Consult with your tax advisor if you’re in a situation where you are making substantial contributions.
Edited for Concision and Clarity
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