The tax policy for the next two years and thus the tax planning strategies can be determined in Georgia early next year.
On January 5, 2021, the state will hold runoff elections for two Senate seats, which can determine whether Republicans will retain control of the Senate or whether Democrats will have trifecta control over the White House and both houses of Congress. With their late wins in the Senate in Alaska and North Carolina, Republicans will hold 50 seats in the Senate on January 1, 2021.
“Republicans only need to win one of Georgia’s two runoff elections in January to retain control of the Senate,” said Roger Harris, president of Padgett Business Services and a native of Georgia. “I have a feeling they will win at least one of the two runoff elections in January 2021. Without them, the Democrats would have effective control over the Senate with the groundbreaking Vice President vote.”
According to Harris, this means a ripple for many year-end moves. “It comes down to a ‘wait and see’ game,” he said. “A lot depends on how these drains come out. The power structure will change if the Democrats get either or both of these seats, and there could be significant changes. But if the Republicans hold the Senate, it’s unlikely we’ll see anything dramatic like the tax cuts and jobs bill or a huge tax burden. Republicans will now have more seats in the house, so Democrats would have to be nearly 100 percent united to get something out of the house. “
So corporate tax rates are likely to stay the same with no major tax legislation emerging, Harris predicted. “If the Senate says in Republican hands, the House has to find tax matters that both parties can agree on so there could be some compromise. It is possible that the corporate rate could be raised slightly if the Democrats give Republicans what they want. “
Harris’ advice: “Plan based on the current law, but be prepared if, either during the lame ducks session or immediately in January, we get a business cycle statement that optimizes the tax law. And if the Democrats win both Senate seats in Georgia, they might want to get something done right away. So be ready to adapt if something changes. “
The danger, according to Harris, is to assume that all proposed changes will occur and to plan based on that. “The key will be to see how the Senate does.”
Tom Wheelwright, CPA, president of accounting firm WealthAbility, agreed. “From a federal tax point of view, there won’t be any major changes. They will figure out how to pay for things and can make minor changes. The good news is that the corporate rate is not going to change, so overseas businesses will continue to pique interest in moving to the US. “
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At the state level
Wheelwright saw some positive developments in state taxation as a result of the election, the only negative being the apparent passage of Arizona’s 208 proposal.
“Proposition 208 is a constitutional amendment that provides for an income of 3.5 percent over $ 250,000 in addition to the existing income tax. The proceeds would go directly to school districts without legal control. There is nothing the legislator can do about it – another proposal or a judicial challenge is required to change this. You will soon see Taj Mahal buildings and regulatory agencies with salaries of half a million. “
But there’s better news for Illinois and California taxpayers, Wheelwright suggested. “Both states had important fiscal measures on the ballot,” he said. “In Illinois, a proposal to switch from a flat rate to a tiered rate was rejected. In California, an attempt to repeal Proposition 13, which kept property taxes down, was also thwarted. Both results are good news for taxpayers. “
The ability to make adjustments in the fourth quarter as part of a tax strategy depends on the final result of the Senate races, agreed Jared Feldman, partner in charge of the Private Client Group at Top 100 Firm Anchin. “There are options here and choices to be made, depending on where that goes,” he said. “If there is a Democrat in the White House and the Democrats control both Houses of Congress, there is a lot more change ahead of us. A divided Congress will make it more difficult to bring about change. “
“Biden has talked about raising the maximum normal income rate back to 39.6 percent. He would also make changes to the FICA. The current FICA maximum is $ 137,700 – anything beyond that is not subject to social security tax. Under Biden’s plan, the tax would re-apply on incomes over $ 400,000. This would have a dramatic impact on taxpayers, ”Feldman said.
According to Feldman, the abolition of the SALT limit of US $ 10,000 could also be on the horizon. “This would affect many wealthy taxpayers in many high-tax countries,” he said. “That may be at the top of Biden’s wish list, but with a divided congress it will be a tough challenge. At the moment there is only great uncertainty. “
“Biden would raise the corporate income tax rate to 28 percent, and he has also proposed an offshore income tax,” Feldman noted. The real estate industry would benefit from Biden’s proposal for a new refundable upfront payment to support first-time home purchases. He noted, “This would be refunded at the time of purchase rather than normal credit.”
“Last but not least is the estate tax,” Feldman said. “This is really a popular topic in the wealthy community. The lifelong exemption, which is now set to rise to $ 11.7 million in 2021, will decrease back to $ 5.8 million in 2025. Biden has talked about reducing the exemption before 2025, so advisors should think about planning options to take advantage of the current exemption. “
“These are all things to think about as we get more clarity on the form of government,” he said. “A divided Congress upsets many things, so it won’t be everyone’s dream list of what to do. There will be a lot of negotiating and giving and taking. “
“In a stimulus package, there are a few things that can happen, but otherwise, tax legislation is not going to get in the way of a divided Congress,” agreed Bill Smith, chief executive of the national tax bureau of the top 100 company, CBIZ. “For example, we could expand some extenders. With a divided Congress, that probably means [Senate Majority Leader] Mitch McConnell keeps his job. And he’s determined to block things that don’t fit the Republican agenda. A stimulus package is unlikely to be passed during a session with lame ducks as Republicans are reluctant to increase the deficit. “