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Planning for Upcoming Tax Increases

There is no time like the present for investors to consider their financial situations and planning and act to make changes under current rules. With the national debt sky-high, the economy ravaged by COVID lockdowns and everyone seemingly asking for funding of a wide variety of pet projects, the one thing that seems certain is that the government will be squeezing more revenue out of taxpayers. Make no mistake: this revenue seeking won’t simply impact high income and wealthy taxpayers. Taxpayers at all levels of the economy will be facing increased government demands not simply for income tax but for increased taxes on services, on the sale and consumption of goods, on ownership of real and intangible property and more. Even if your income is in the bottom quintile, you will feel the pain of the tax bite on everyday living even if you manage to avoid the income tax itself.

Planning related to income may include moving income into the current year when rates are likely to be lower than next year (or at least equal, making sure contributions to qualified retirement plans are maximized, taking capital gains to the extent they qualify for the zero tax rate or even when they fall below the maximum rate and so on. Other tax planning might include making gifts up to the annual exclusion to family members, charitable gifts as desired and taxable gifts in trust to take advantage of the high lifetime exclusions.  Note that making gifts in kind to family members, they take the cost basis the donor had in the gifted securities and if basis is low, those recipients could also benefit tax-wise from the low capital gains rate for low and middle income taxpayers.

Finally, tax planning may include decisions to accelerate decisions on purchases with an eye to take advantage of current sales and other taxes. It follows that upon the advent of various tax increases one would reduce or postpone various forms of consumption and with those choices experience a reduction in the total taxes you pay in future.


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