Special Report
Planning Strategies and Techniques Available Through End of Year
Tax planning in 2018 and 2019, in the wake of the Tax Cuts and Jobs Act, was largely a settled issue. Tax rates have been stable at a low level, meaning that there hasn’t exactly been much reason to act quickly at the end of the year to take advantage of a beneficial tax environment down the road. With no looming tax legislation or massive policy changes, one year has more or less been just like the year before it.
Of course, 2020 has changed all of that, throwing Major League curveballs into what had been batting practice. The biggest curveball is the ongoing COVID-19 (coronavirus) crisis. With an uncertain economic future because of the pandemic, there is major incentive to maximize all tax savings now. Additionally, the Coronavirus Aid, Relief, and Economic Security (CARES) Act enacted many taxpayer-friendly provisions, many of which have a 2020 expiration date. On top of that, 2020 sees a presidential election, which always means that major tax policy changes could be months away.
With so much going on in the world, the certainty of a logical and reasonable tax plan is very important, and can be instrumental in helping families and businesses get through a very difficult time.
Election Impact
A great deal of year-end tax planning for 2020 is contingent on the outcome of the elections on November 3. At the time of publication, the election was about a week away. A win by former Vice President Biden (along with Democratic control of Congress), promises an increase in taxes on higher income individuals and corporations. However, a re-election of President Trump (with or without Democratic control of Congress) means a likely continuation of current tax policies through 2024.
Since year-end tax planning often means having to determine whether to accelerate or delay income or deductions between years, it may be wise to hold off on any decisions until the outcome of the election is clear. Unfortunately, if the election is close and subject to contention after November 3, there could be limited time to act once the results are official. Thus, it would be prudent to make a plan now for both contingencies, and get the pieces into place for quick action.
COVID-19 and Legislation
Another real world impact on year-end tax planning is the ongoing COVID-19 crisis. Clearly, tax considerations should take a back seat to any decisions being made for reasons related to health and medical care. However, the escalating crisis continues to impact the economy, and there is a great deal of demand for additional stimulus/relief legislation to follow up on the CARES Act.
Again, the timing of any legislation largely hinges on the outcome of the election. Congressional Republicans have made it clear that a Biden win will not result in any lame duck legislation in 2020, as they would not be willing to hand the incoming administration a victory before even taking office. However, a Trump win could mean that legislation is back on the table for the end of 2020, as the economy continues to reel from the pandemic.
Thus, a wait and see approach may be best for now. How any legislation can impact various plans will be detailed in another post.
For more information about year-end tax planning, contact your Larson & Company CPA today!
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