InsuranceNewsNet Magazine - October 2020 by InsuranceNewsNet

COVER STORY 2020 VISION — OR REVISION? Trump, on the other hand, is calling for further and immediate cuts to the capital gains tax. While a favorite target of Republicans, support for such a measure was questionable as of press deadline. But it could be on the table if the incumbent wins a second term.

The Checklist

Keebler addressed several tax planning areas that are likely to change if Biden wins the election. Some additional areas to keep an eye on include: Roth conversions. “Roth conversions should be red hot up toward the end of the year regardless of who wins the election, but more so if vice president Biden were to win,” Keebler said.

to the tax as it stands, with the employee paying 6.2%. Among the many other potential changes and strategies, Keebler points to a big one in the Coronavirus Aid, Relief, and Economic Security (CARES) Act passed in March: Charitable contributions of cash up to 100% of adjusted gross income are allowed for 2020. Estate planning. It is “imperative” to have estate planning done by Dec. 31, Keebler said. The Democratic platform calls for returning the estate tax to the “historical norm.” The 2017 tax bill doubled the amount that individuals can pass on before the 40% estate and gift tax kicks in. In 2020, that number is $11.58 million.

Roth conversions should be red hot up toward the end of the year regardless of who wins the election. The reasoning is simple: Converting money from a traditional IRA to a Roth IRA will be cheaper to do this year. Doing so will lock in today’s tax rates of 10%, 12%, 22%, or 24% on taxable incomes up to $326,600 for joint filers. With the taxes out of the way, the converted funds will resume growing tax free inside a Roth. Income harvesting. This is a similar strategy, Keebler said. By claiming as much income as will fit into a specific tax bracket, high-income clients can save plenty. “Gain harvesting can be really important this year, because one of the vice president’s policies is to take the capital gain rate to 39.6% for those Americans earning more than a million dollars, so you would push that way up,” Keebler said. There are a number of different harvesting strategies to maximize the tax benefits, he added. Personal income tax. The Biden plan includes many changes to the income tax code. In particular, Biden wants to raise the top individual income tax rate to 39.6% from 37% and apply it to taxpayers with taxable income over $400,000, according to the Tax Policy Center. In addition, Biden supports increasing the earnings that are subjected to the Social Security payroll tax to more than $400,000, according to the Tax Policy Center. Wages up to $137,700 are subject 24

Biden would likely favor elimination of the step-up in basis, a provision in the tax code that allows an individual to hold on to an asset for years while it appreciates, then bequeath it to an heir at death. The heir is subject to little or no capital gains taxes upon selling the asset because it steps up to market value at death. While it is unclear if the top 39.6% tax rate would apply, Keebler nevertheless calls elimination of the step-up “a fundamental shift to the taxation of wealthy families.” There are many other possible tax changes on the table in a hypothetical Biden administration, Keebler said. Corporate tax rates are likely to change, as are gifting rules and exemptions, among others. The important thing is to have clients prepared to pivot. “What we’re doing is putting together action plans on a client-by-client basis and getting the clients to agree to those, so when the day comes where we have to implement,” he said, “there is no thinking required.” I n s u r a n c e N ews N e t Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at john. hilton@innfeedback.com. Follow him on Twitter @INNJohnH.

InsuranceNewsNet Magazine » October 2020

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