Adapting Your Financial Plan Ahead of Changing Policy
Many people are unsure how the new administration’s economic policy will impact them and are concerned about the potential for rising taxes. While Biden has committed to not raising taxes for individuals earning less than $400,000 per year, it may be a good idea to adapt financial plans to accommodate shifting tax policy.
Two key tax changes planned by the Biden administration include:
- Taxing long-term capital gains and dividends at the ordinary income tax rate of 39.6% for annual incomes greater than $1 million.
- Reducing the amount of funds an individual can transfer tax-free to $3.5 million for federal estate taxes and $1 million for federal gift taxes.
In the past, long-term capital gains were taxed at a lower rate than short-term capital gains. But the Biden administration’s plan to increase long-term capital gains taxes to 39.6% on annual incomes greater than $1 million means many Americans could face higher taxes on their investment returns. This tax increase may be unavoidable for many investors, but there are a few ways to potentially offset it.
How to prepare: One of our year-end planning tips comes in handy here: offsetting capital gains with capital losses. Investors can offset any gains during the year with losses, in order to lower their overall gains and decrease the funds exposed to a higher capital gains tax. Tax-deferred retirement plans can also be utilized, but ultimately, it’s important to work closely with your financial advisor and tax planner to solidify a tax and financial strategy that best suits your specific needs.
Many people can become worried about the implications of potential tax policy changes, or hopeful about the possibility of future tax breaks. However, it’s important to always plan defensively and remain adaptable, rather than make your financial security reliant on fiscal policy modifications that may or may not happen.
If you have any questions about adapting your financial plan to address future concerns, the advisors at Girard are here to help. Contact us to have a conversation about creating a comprehensive and adaptable plan for your financial future.
This article is for general information purposes only and is not intended to provide legal, tax, accounting or financial advice. The information in this article, and any opinions expressed therein, do not constitute a recommendation or an offer to buy or sell any security or financial instrument. Viewers should consult with their financial, tax and/or legal professionals before making any financial or tax related decisions.
