With the change of Administration in Washington, it is likely significant tax law changes will be made in the coming year. The following highlights some of the potential changes in tax law we believe may be made to increase federal tax revenues as well as some potential actions that can be made in anticipation.
Potential targets for tax increases as we see them
- Increase in tax rates
- Reduction or elimination of favorable capital gains and qualified dividend tax rates
- Reduction or elimination of the qualified business income deduction
- Reduction or elimination of immediate expensing of capital purchases
- Reduction or elimination of business tax credits
- Reduction or elimination of retirement savings incentives
- Caps on deductible compensation of highly compensated employees
Strategies in anticipation of these concerns (actions to consider now, while benefits from the current tax law are still in place)
- Sell assets eligible for favorable capital gains tax rates
- Acquire investment and business property that is subject to favorable depreciation rules before potential law changes
- In contradiction to the point above, delay acquiring investment and business property to save their write-offs for offsetting against higher tax rates
- Delay selling business property that would generate a loss
- While Congress would not want this to be the result of its actions, raise prices on products and services in anticipation of future higher tax rates
While these strategies may help to mitigate the negative consequences of future changes to tax law, there is a potential caveat. Typically in the past, mid-year law changes have been made effective on the date Congress first contemplates a change or at some future effective date. However Congress does have the ability to make retroactive law changes, for example back to January 1, 2021.
Please contact us or your personal tax professional for more details or advice on specific responses that you might consider for your family or business.