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Death and Taxes

Death and Taxes

| July 23, 2020

It seems like the dominant things I think about lately, regarding financial planning at least, are risk and taxes.

I'll try to stop harping on the appropriate risk level for your portfolio for a while, and pivot to one of my other favorite obsessions, taxes.

We have a potential change ahead of us regarding how companies and individuals are taxed.

This adjustment is something we've been starting to think about. It is prudent totake preliminary preparation steps. As you've seen in some of our other writings, we have invested in technology to help us identify and assess opportunities and areas for improvement for harvesting losses and gains, amongother considerations.

We strive to remain on the cutting edge so that we bring the best value to our clients while helping them make educated decisions in their best interests.

Taxes are one of the big area we are thinking about – what taxes on your investments increase substantially?

Currently, the capital gains tax rates are generally from 0% to 15% for most people. It’s possible they could skyrocket to ordinary income tax levels – potentially three times the current rates!

So, what would you do if your taxes were about to triple?

Well, if you had highly appreciated stock, you might rush to sell that stock, then pay the taxes to avoid the tripling of the tax rate. This scenario is potentially very disruptive, which could make things very busy around here if they come to fruition. It's something to keep in the back of your mind.

What have we been doing at ISC? Fortunately, we performed significant amounts of tax-loss harvesting during the first quarter to help our clients with future gains. A major benefit to tax-loss harvesting is that the losses carry-forward to future years – that could reap huge benefits under new laws.We stand ready to review and assess new legislation so that our clients are in the best possible position.  

Furthermore, we're looking at four big changes to leaving money to your family and how that money is taxed. Maximizing generational wealth is one of our top priorities at ISC.

1) There might be an elimination of the “step-up in basis” when leaving appreciated assets in taxable accounts to family.

2) There may be a reduction in the estate tax thresholds. The current lofty level of $22,360,000 does not cause issues, but if that exemption amount were to drop considerably, it would impact some of our clients.

3) Individual tax rates may be going up. Tax-deferred accounts and tax-free investments would be more attractive under a higher tax rate regime.

4) Even if nothing changes, huge deficits and rising debt due to the COVID-19 bailout might mean the tax cuts will expire as scheduled in 2026.

These changes may mean accelerating income, or pulling-forward income, in 2020 is attractive. Of course, much depends on YOUR situation, not just the goings-on in Washington. We are somewhat concerned that retirees are avoiding taking their usual required minimum distribution to enjoy the current-year tax savings – that may mean an even bigger tax bill in the future!

  • Depending on what happens, you may want sit down & talk about some of these strategies with us.

Please reach out if you're interested.

Strategies could include:

  • Selling to realize taxes early – “harvesting gains”
  • Accelerating income from retirement accounts
  • Not taking income from retirement accounts
  • Converting money from retirement accounts to Roth IRAs
  • Gifting to children, grandchildren, either in individual accounts or in college savings accounts
  • Moving to lower income tax states like Florida, Arizona, Texas, South Dakota, Wyoming, Nevada, Washington, North Dakota
  • Evaluating charitable intent and maximizing the impact with the new tax laws
  • Rewriting your estate planning documents to allow more flexibility due to the uncertainty of what the tax laws will be from year to year
  • Coordinating with your tax preparer, not only at tax time, but hopefully mid-year, to make sure you're making the most of your situation for you and your family

Here’s the point.

Taxes are a big deal.

It’s an admittedly boring subject, but the proper tax strategy can mean thousands of dollars in savings for you and your family. A wrong move can cost you dearly! We want to ensure you are in the best possible position during these uncertain times.


Thanks for taking a look!

Your Team at ISC Financial Advisors