The question of whether or when tax rates may go higher is one asked after many a US Presidential election. The actuality of taxes going up is altogether another issue with its own timing depending on the President, party and Congress involved. There can be signals of both higher and lower taxes that certain candidates and Presidents communicate to win friends (and elections) and influence people.
In fact, in reading this week the obituary of Walter Mondale it seems that his transparent insistency on a proposal to raise taxes in his mid-1980’s US Presidential bid was a major factor behind his losing the election to Ronald Reagan (Reagan’s 2nd term run). That was then, this is now. One could say that now President Biden ran on a platform to raise taxes – in part winning him the election. Taxes and tax plans may always be part of US elections as they say the only things certain in life are death and taxes.
Now for the uplifting part since after all it is Friday: taxes are going up. It is not so much IF as WHEN. But taxes will likely not go up the same for everyone. The three most likely scenarios of higher taxes* – with unknown timing – are:
- A higher TOP Federal tax bracket on individuals and married couples to nearly 40% (or more) on the top dollar earned.
- Higher capital gains tax rates (the taxes due upon the sale of an investment or home, etc.) to nearly 40% or more for the highest earners.
- Higher corporate income tax rates for most businesses.
This should not be new news to anyone reading this post, and the timing and strategies around higher individual and corporate income taxes are as unpredictable and numerous as there are flavors of ice cream. There is no “magic bullet” strategy to avoiding tax increases. And remember, most of the time higher taxes mean a person or business is earning more, so this can be characterized as a “quality” or “high-class” problem albeit a challenge to be addressed. A plan or strategy is needed.
Amidst the myriad of investment and tax strategies for avoiding possible higher taxes in the future are –
- Delaying income until the future (bonuses, sale of a business)
- Accelerating income to the present
- Delaying realizing the gain on an investment or asset
- Accelerating realizing the gain on an asset (thus paying taxes now to avoid future higher taxes)
- Placing assets in tax free and tax-deferred vehicles
- Spreading out “income events” over time to even out the tax hit
These are questions to be discussed with a tax professional or CPA alongside your financial adviser. Most important, the GOALS around when and why a person, couple or business would want to reduce taxes are the key starting point. No matter who is President or what party is in power the topic of taxes needs to accompany savings and investment strategy and all types of goal setting. Start today for better peace of mind overall.
*Consult a tax professional on all tax matters.