Year-End Tax Planning: Steps to Take Now for 2021

During this election year, with the determination of the Senate seats not taking place until January 2021, taxpayers will be faced with uncertainty in their approach to planning. The outcome of the Senate will play a key role in whether the Biden Administration will move forward with several planned proposals. While it remains unclear whether there will be any significant tax changes next year, these are steps that taxpayers can take during the remainder of 2020 to be well-positioned for 2021 no matter who controls the Senate.

Potential Tax Proposals

There are several tax proposals to consider under the Biden Administration:

• Capital Gain Tax: Would raise the capital gain rate from 20% to 39.6% for taxpayers with income over $1 million.
• Charitable Donations: Itemized deductions would be capped at a 28% tax benefit compared to the current 37%, for those earning over $400,000, compared to 37% currently.
• Estate Tax: Would reduce the gift and estate tax exemption to $3.5 million from $11.58 million.

2021 Considerations: Ways to Plan Now

Taxpayers may consider the following actions now to prepare for 2021:

• For high-wealth clients, consider making larger gifts in December 2020 to utilize the current estate tax exemption
• For individuals in the highest tax bracket, make charitable donations in December 2020 to maximize donation deductions
• Move up any planned sales of assets to accelerate capital gains

We will continue to closely monitor updates in early January 2021 and will provide ongoing guidance on best practices to consider.