Only five months have passed since our past April 15th tax day, and most people are not thinking about year-end tax and financial planning just yet. In a “normal” year, that is an oversight, but in a Presidential election year, it could represent a financial error. In this particular election year, it could constitute an epic fail. Taxpayers who are also investors should be assessing the possibilities and what effect certain outcomes may produce.
Markets and political polls are rife with volatility this year and with good reason. Financially, the candidates are polar opposites, and the winner is likely to have a dramatic impact on individual and corporate taxation. With that in mind, this is none too soon to begin contingency planning. Once plans are made, there will be time post-election to execute whatever steps have been outlined.
From our standpoint, tax planning could be significantly dependent on election results. Trump’s Plan includes making the 2017 TCJA (Tax Cuts and Jobs Act) tax rates (and expanded brackets) permanent. The Harris proposal would let the “Sunset” provision kick in, raising tax rates for nearly all Americans on January 1, 2026. That leaves two tax years to take advantage of the lower rates.
Should the likelihood arise that taxes will be higher, this may be a perfect time to begin Roth Conversions, reducing future RMDs (Required Minimum Distribution) in the future, when tax rates will likely be higher. Naturally, if election results favor making rates permanent, the wisdom of performing Roth Conversions may be lessened.
Taxpayers with a degree of control regarding their personal income and expenses can often minimize the tax impact. Taxpayers in high-tax states, who have been limited to a $10,000 maximum annual deduction for SALT (State and Local Taxes) may be able to defer some of their expenses to 2026 when the limitation would expire.
In every year, investors should examine their holdings (those in taxable accounts) to see if they could benefit from some tax-loss harvesting. In order to realize a capital loss, the asset cannot be repurchased until at least 31 days after the sale. “Banking” some losses allows future gains to be offset, which may be much more valuable in 2026 if rates rise.
With markets high right now, many of our clients are finding it impossible to find and execute taxable losses. However, investors holding many individual stocks may have several winners and several losers, as recent market gains have favored super-huge companies. Lesser-known companies have only recently begun a rebound, and losses may be available, in time for a replacement purchase prior to a broad market rally.
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