Most Americans just filed their taxes for 2019 in October and here we are again at tax time. By the time we submit this year, a quarter of the year will have passed and there are a few opportunities associated with it.
This is the time to start planning for potential tax changes under the new administration, if you are one of the affected groups. We don’t know if all of these changes will be implemented or in what year they will take place, but it is important to plan ahead and be prepared. The Biden Tax Plan provides tax increases on income over $ 400,000 and higher capital gains tax on income over $ 1 million.
Only the top 1.8% of Americans make more than $ 400,000 a year, according to the IRS. Income over $ 1 million makes up less than one-tenth of 1% of US wage earners. While no one likes tax hikes of any kind, these are not meant to have a major impact on the general population. If you are falling into the highest income levels, you should meet with your counselors soon to find the best options.
Since the typical wage earner is well below these income limits, you can actually benefit from new tax credits. This may include increasing the child tax credit from $ 2,000 to $ 3,000 and a bonus credit of $ 600 for children under the age of 6. There is also a tax credit for first-time buyers, and a higher refund rate is added to the child and dependent tax credit. Childless workers over 65 years of age can take advantage of the Extended Earned Income Tax Credit, and there are renewable energy tax credits for individuals .¹
The average earner should continue to plan for future tax changes. The current tax plan expires at the end of 2025. If no further changes have been made by then, our tax code will be reset across a broad front in higher brackets. It is important to plan taxes all year round.
First, for filing taxes for 2020: if you are self-employed, or have the ability to bring in more income in 2020, or even for those funding a self-employed retirement plan, you should consider voluntarily paying more tax on 2020 income. This includes viewing your final Solo 401 (k) contribution as Roth instead of input tax. These final contributions are not due until after your tax return deadline this year.
While you are collecting your data for the tax advisor for the past year, plan for this year as well. Try to determine what your income will be this year. Do you have an opportunity to earn more income this year? If not, consider a Roth conversion or bundle individual prints for future years. Some investors may want to consider realizing capital gains and avoid losses this year as well.
Remember that “the only constant in life is change”. ² There will be a lot more information about the new changes in administrative and tax law. In the meantime, there is a big political agenda for this year that can replace personal taxes. Biden has said he is focused on getting the pandemic under control, passing another stimulus package, creating jobs, reforming the judiciary and taking action to reduce climate change. Biden also stated that foreign policy, immigration, infrastructure and voting rights are on his short-term agenda. When he finds time to study taxes, his most recent testimony has centered on lifting the corporate tax cut first, incentivizing American-made products, and then examining income taxes for the richest Americans. He is also committed to improving health care and education, and vowed not to increase taxes on wage earners under $ 400,000
Meet with your advisor earlier this year to plan what’s best for you and your family … and buckle up.
1. The tax foundation 2. Heriklit. 3. NPR
This article is for information only and does not contain all tax changes.
Patricia Kummer has been a certified financial planner and trustee for over 35 years. She is the director of Mariner Wealth Advisors, an SEC registered investment advisor. Please visit www.marinerwealthadvisors.com for more information or visit the Investment Adviser Public Disclosure website (www.adviserinfo.sec.gov). Securities offered through MSEC, LLC, member FINRA & SIPC, 5700 W. 112. Suite 500, Overland Park, KS 66211.