We have a new administration in Washington, and the Democrats control the House and the Senate. So, what’s next for taxes?
We don’t know when tax laws might change but we know they will at some point. That’s what tax laws do.
In the near term, we can expect lawmakers to focus on urgent issues, like vaccine distribution, stimulus aid, and the economy. But at some point, a new tax plan is likely to show up.
The Biden administration is likely to raise taxes, at least for some folks. Hopefully, not until the pandemic settles down and the economy gets stronger.
If 2022 sees tax rule changes, 2021 might be our last chance to take advantage of the current rules.
So, what actions can you take now to make the most of today’s low tax rates?
Here are some key areas of your taxes you want to consider in 2021.
One: Biden’s proposed plan targets high-income earners for an income tax hike.1 If that’s you, 2021 may be an excellent time to consider accelerating income (especially if you own a business) or completing a Roth conversion. These are big moves with financial consequences, so you’ll want to get advice before you pull the trigger.
Two: Estate and gift tax exemptions went up to $11.7 million this year, but they might drop again under a new tax plan.2 That makes 2021 a critical year for estate planning.
Please don’t think new laws couldn’t affect a much smaller estate, either. As recently as 2001, the federal estate tax exemption amount was just $675,000.3 It’s not likely that new rules would go back to such low levels, but I don’t want you to be caught flatfooted by a change.
Three: Deductible retirement plan contributions might be treated differently for tax purposes in the future.4 If you’re a high earner, maxing out deductible contributions this year and considering a Roth-style plan in the future might be smart.
Bottom line.
Tax laws are in a constant state of flux. We don’t know when the rules will change or what they’ll look like once Congress gets done haggling, but we can take some proactive steps now. Part of my job is to help you stay on top of the rules and maximize your opportunities every year!
1https://www.kiplinger.com/taxes/602109/president-bidens-tax-plans-for-the-next-few-years
2https://www.kiplinger.com/taxes/601639/estate-tax-exemption
3https://taxfoundation.org/federal-estate-and-gift-tax-rates-exemptions-and-exclusions-1916-2014/
