Tax filing day – extended to May 17 this year – has come and gone, so now is probably a good time to take a break from thinking about taxes. Or is it?
2021 may turn out to be one of the busiest years ever for tax law changes. Changes are already underway due to laws already passed, and new tax law proposals are working their way through the halls of Congress. If they too are passed, we expect to see substantial modifications to income tax rates, capital gains tax rates, and estate and gift tax rates.
So why haven’t we published any blog posts reviewing these proposals?
Three-word answer – it’s too early.
Right now, almost all the proposed changes are in their infancy stages, full of political posturing. To review what is being discussed now before it becomes more concrete would not serve any good purpose. So instead, we continue to evaluate the proposals as they evolve while at the same time thinking about what these changes would mean to you and your family. Then, if and when these various changes become law, we will be ready to make appropriate recommendations to you.
So, what can you do while Congress toils?
Below are a few questions to consider. Your answers will assist us in helping you plan for future tax law changes. So, give some thought to the following questions:
- Do you anticipate your income changing over the next three to five years? Knowing this will help us evaluate the tax bracket you will be in and help us understand the effect any changes to the tax law may have, based on your anticipated taxable income.
- What do you anticipate your cash needs being over the next three to five years? The answer will allow us to create a plan for disbursements to cover living expenses and other anticipated costs. Remember, different accounts have different tax characteristics that matter greatly if you need to withdraw funds from your accounts.
- Where do you think you will be living in the next three to five years? If you plan on moving to a lower-taxed state or a state with a higher income tax, that will impact your state tax liability and create planning opportunities now, especially relevant if tax law changes occur.
- Do you have any charitable intentions, and do you prefer to give while alive or at death? Charities may be significant benefactors if income tax and capital gains rates increase in the future.
- Have you decided how you would like to distribute your assets when you die? Presumably, if married, assets would go to the surviving spouse. But after the survivor dies, then who gets your stuff? If the estate and gift tax law changes being discussed come to fruition, choosing who gets what specific assets will become more critical than ever. For example, there are pros and cons associated with leaving retirement and non-retirement assets to different beneficiaries.
As we have always done when major tax legislation has been passed, when the time is right, we will analyze the changes and explain how they may affect your taxes. But until then, give some thought to the questions we mention above, and feel free to call us if you wish to discuss anything.