Our advisors, John McBride and Jordan Banning, spoke during a recent webinar on the Post-Election Economic Forecast and Tax Planning Strategies for year-end. We have put together the following blog as a partial transcript from our webinar. To view the full webinar, click here or view the video below. Should you have any questions after watching our webinar or reading our blog, please email our advisory team at john@swa.financial or jordan@swa.financial for more information.
While we wait for the official election results, it’s important for investors to focus on the upcoming Economic Forecast under the Biden Administration and proposed tax law changes. Although election outcomes can come with some uncertainty, our team of advisors are keeping our client’s financial plans at the forefront to ensure we are prepared for what is ahead.
Keep A Long-Term Perspective
It is easy to worry about the impacts of policy changes due to our elected officials’ turnover. Keep in mind that elections are a foundation of our country, and just like “the most important election of our lifetime” four years ago, and “the most important election of our lifetime” this year, we will have “the most important election of our lifetime” in another four years. No matter which way you voted, keeping a long-term perspective is much more critical to accomplishing your investment goals than a particular candidate winning or losing. History has proven that the stock market can perform well when the government is under the control of both major political parties. As long as you have a long-term financial plan in place that keeps you on track to accomplish your goals, rest easy knowing you can still stay on track despite any election result.
Control What You Can Control
You can’t control the economy, government policy decisions, or business cycles, so why worry about them? Instead, focus on what you can do to stay on track to achieving your financial goals. Review your financial plan with your advisor, find any opportunities for improvement, and work on them by making positive incremental changes.
Proposed Tax Law Changes
The final division of our government will not be determined until Georgia holds their runoff elections at the beginning of January. Our opinion is leaning towards a divided government, with the Presidency and House held by the Democrats, while the Senate remains in Republican hands; it is important to note that democracy works well under a divided government. This is how our country has operated 62% of the time since World War II. With a divided government, we anticipate a diminished ability for the proposed tax changes to become law. However, we still want to make you aware of several tax law changes that may take effect once President-Elect Biden is in the Oval Office. While we believe the immediate changes are unlikely, these items would still be on the table pending the Midterm Election in 2022, or Presidential Election in 2024, so it is important to understand how they may impact your financial planning.
Increase corporate tax rates.
Biden’s plan would increase the corporate tax rate to 28%.
Increase the marginal tax rate for top earners.
This would raise the top marginal income-tax bracket from 37% to 39.6%.
Raise the capital gains tax on filers with incomes above $1 million.
Filers with over $1 million in income would pay ordinary tax rates on gains, no matter how long they’ve held an asset. These filers would pay 39.6%, plus the net investment income tax, for a total tax rate of over 43%.
Limit itemized deductions.
Biden’s plan would cap itemized deductions at 28%.
Phase out small business income deductions over $400,000.
For those with less than $400,000 in income, qualified business income deductions would still be in place. However, Biden’s plan would phase out pass-through deductions for those with over $400,000 in earnings.
Eliminate step-up in basis.
Biden’s tax plan seeks to put an end to the step-up in basis. A step-up in basis is the cost basis on an asset that is transferred to an heir upon a person’s death. Heirs would not inherit stepped-up cost bases in the Biden plan.
Reduce estate tax exemption.
Biden would like to reduce estate tax exemptions to $3,500,000. Estates with values of more than $3,500,000 would be taxed.
Its important to also note that regardless whether these proposed changes are implemented or not, taxes will increase back to pre-2018 levels come 2026, when the Tax Cuts and Jobs Act is scheduled to “Sunset”.
We’re Here To Help
We’re here to answer any questions you have about the proposed tax law changes, tax planning for 2021, or anything related to your overall wealth management and financial planning. At Stewardship Wealth Advisors, we aim to help clients prepare financial today, to live purposefully tomorrow. Reach out to us today at 623.251.7282 or email us at hello@swa.financial to schedule a time to chat.
About Stewardship Wealth Advisors
Stewardship Wealth Advisors is an independent, fee-based comprehensive financial planning firm dedicated to empowering clients to steward their wealth well and maximize their hard work and dedication. With decades of experience, our team of advisors builds a foundational relationship to create a personalized financial plan to help their clients reach their goals and achieve financial independence. To learn more about what we do and how we can help you, connect with us online.
