Income tax planning is a crucial aspect of the overall financial planning process. Making tax efficient decisions requires a deep understanding of the tax rules and regulations. Changes to these rules may present new planning opportunities for those paying close attention. Those not paying attention are unlikely to take full advantage of new opportunities to reduce their tax bill and may even needlessly increase the amount of taxes they owe over time.

In the last few years, new bills including the SECURE Act, Disaster Act, CARES Act, FFCR Act and the American Rescue Plan, not to mention the Tax Cuts and Jobs Act (TCJA), have brought about significant changes to the tax laws for individuals and businesses. This new legislation has impacted everything from tax rates, availability of credits and deductions, even the timing of when you must start withdrawing money from your retirement accounts.

What can be especially maddening for taxpayers, is that many of the changes that most impact their situation may only be temporary. Credit amounts, limitation thresholds, and available deductions are often put in place for only a single tax year, unless extended, typically last minute. Many of the changes resulting from the TCJA are scheduled to expire at the end of 2025. Absent new legislation, many of the tax rates and deductions affecting individuals and small businesses will revert to what was in place in 2017.

What's more, news of proposed future changes to the tax laws, at best, present planning challenges and, at worst, cause taxpayers to make decisions based on proposed legislation which never comes to fruition.

For example, there are current legislative proposals being discussed that would:

  • Increase the top tax rate on long-term capital gains from 20% to 39.6%.
  • Do away with (or limit) Like-Kind Exchanges for real estate.
  • Get rid of the “Step-Up” in cost basis on most assets transferred at death.
  • Tax capital gains on asset transfers from partnerships and certain irrevocable trusts.
  • Increase the age to start taking required minimum distributions (RMDs) to as late as 75.

Without proper planning, some people could find themselves paying much more in taxes than they bargained for. At the moment these proposals don’t seem to have gained much traction politically. Taxpayers should be careful not to move too quickly with strategies in anticipation of a change in law.  

Even for those interested, it can be a challenge keeping up with all the actual and prosed legislative changes. That's where we come in! Our advisors pay close attention to changes in the tax code and incorporate those changes in the strategies we implement for our clients.

Get in touch with a Rialto advisor if you have any questions about current or proposed tax laws, and how they may affect your situation.