The rumors are flying about changes to tax law coming soon. We don’t know yet exactly what might change, but it doesn’t mean that a lot of people aren’t worrying.
One of the rumors is that capital gains tax will be raised dramatically. And it is a big jump, going from a maximum of 20% to 39.6%. However, this is only going to hit taxpayers who make over $1 million per year.
It is not going to hit middle income taxpayers simply because a middle-income taxpayer doesn’t make over $1 million per year. That’s simply based on the definition.
For people who are at that tax bracket, some of the strategies they likely will employ would include a charitable remainder trust, tax deferred pension plans, income splitting, trusts, and even corporations. Yes, it might even be better to put appreciating assets inside a corporation. I never thought I’d recommend that.
Capital gains is a discretionary tax. You can choose when and if you exercise the sales that lead to the tax. Most likely we’ll see a slow down of selling highly appreciated assets, stretching over time. There will be more emphasis on reducing taxable income below the $1 million mark and we’ll see loss harvesting to offset capital gains.
Instead of worrying about what might happen, let’s look at what you can proactively do right now.
Get Your Records in Order
It’s never been more important to plan ahead for taxes. You will need to track basis for your investments, including your principal residence, stocks and other paper assets and your basis in your businesses.
You should be able to pull a financial statement that is no older than 30 days after the close of a month so you can calculate your projected taxable income for the year. That will help your advisors make informed decisions.
Build the Right Team
There comes a time when you need to add people to your team. You can’t know everything and do everything. Consider your CPA and your attorney. Look at the education, the experience and the point of view of the advisors you’re relying on. Are they the right people to take you to the next level?
We work exclusively with small business owners (and their businesses) and real estate investors. Contact us to schedule a time to talk about how we can help you achieve your financial goals.