Essential Tax Planning Tips for Investors Amid Upcoming Elections 🗳️
As the Nov. 5 presidential election approaches, it’s crucial to consider the implications it may have on tax policies. While the presidential race garners much attention, the outcomes of congressional elections could significantly influence tax regulations and investment strategies for the coming year. Stay informed and prepare strategically for future changes that could shape your financial landscape.
Insights on Tax Policy from Candidates 💼
There are diverse views on tax policies expressed by various candidates. Former President Donald Trump advocates for reducing corporate tax rates to as low as 15% from the current 21%, and proposes a universal baseline tariff of up to 20% on imports, which may even rise to 60% on goods from China. In contrast, Vice President Kamala Harris supports increasing the corporate tax rate to 28% and raising the top rate on long-term capital gains to 28% for those earning above $1 million.
While these propositions are notable, significant shifts in tax law would likely require a substantial victory from either party to influence swift legislation.
The Sunset of the Tax Cuts and Jobs Act ⏳
Stephen Bigge, a CPA and partner at Keebler & Associates, elaborates that regardless of election results, any meaningful changes in tax legislation may take time. One pressing matter is the impending expiration of the Tax Cuts and Jobs Act, which was enacted in 2018 and introduced major alterations to the federal tax code. This law nearly doubled the standard deduction, modified individual income tax brackets, and lowered most tax rates.
Key elements of the Tax Cuts and Jobs Act include:
- A $10,000 limit on state and local tax deductions
- A doubling of the estate tax exclusion, which is now $13.61 million for individuals
With many of these provisions set to conclude by the end of 2025, it’s wise for investors to start planning their next moves while considering their year-end strategies for 2024.
Effective Tax Loss Harvesting Strategies 🍂
This season presents an excellent opportunity for tax loss harvesting, which allows you to sell underperforming assets in your taxable accounts to report capital losses and counterbalance capital gains. If your losses surpass your gains, you can deduct up to $3,000 against ordinary income and carry forward any remaining amounts.
It’s imperative to remain aware of the IRS wash sale rule, which disallows losses if you repurchase the same security within 30 days of the sale. Assess your portfolio for any lingering losses from previous years or recent trades from this year; they may benefit you shortly.
The Application of Capital Gains Harvesting 📈
Tim Steffen, CPA and director of advanced planning at Baird, emphasizes that capital gains distributions from mutual funds often occur in the latter months of the year, potentially resulting in an unexpected tax bill if these funds are held in a brokerage. While the market has performed well, the exact capital gains distributions can be surprising.
In certain situations, you might also consider capital gains harvesting. For 2024, taxpayers with taxable income not exceeding $47,025 (or $94,050 for married couples filing jointly) may qualify for a 0% tax rate on long-term capital gains. This approach involves strategically selling profitable assets with minimal tax repercussions.
Optimizing Deductions Through Charitable Giving 🎁
You can maximize tax benefits through strategic charitable contributions, especially in a robust market climate like 2024. Several taxpayers have shifted from itemizing deductions following the Tax Cuts and Jobs Act, leading to the prevalent practice of “bunching” deductions. This method allows you to combine multiple years’ worth of charitable contributions to enhance your itemized deductions.
- Consider donating appreciated stock to a donor-advised fund:
- Receive an immediate tax deduction for your donation.
- Allocate the gifts to your chosen charities over time.
Such donations can reduce concentrated investments in your portfolio while simultaneously providing a tax benefit, especially in high-income years. Therefore, if you anticipate significant income—whether from exercising stock options or retirement—think about using a donor-advised fund to optimize your tax situation effectively.
Conclusion 📝
As tax laws and regulations evolve, ensuring that you have a comprehensive understanding and strategic approach will be crucial. Continually assess your investment strategies, remain informed, and work with financial professionals to navigate the complexities of tax planning.
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