President-elect Joe Biden has proposed substantial changes to the tax code, mainly focused on individual income and investment taxes, and at least some of them stand to have a significant impact on high-net-worth investors.
The proposed changes create challenges, but also planning opportunities, for advisors and their HNW clients, Jeffrey Levine, Buckingham Wealth Partners director of advanced planning and Kitces.com lead financial planning nerd, said during a recent Kitces webinar.
Here are his top suggestions for advisors and their HNW clients:
1. Consider “accelerating” some 2021 income before year-end.
Because President-elect Joe Biden has proposed raising taxes on those making more than $400,000, it may make sense for advisors to tell their highest-earning clients they can try to “accelerate” at least some income from 2021 to before the end of 2020 if possible, Levine said.
But we won’t know until after the Georgia Senate runoff elections next month if Biden even has a chance of achieving that proposal because, right now, Republicans control the Senate, he noted.
The “most obvious candidates for accelerating income” to this month are those already in the highest tax bracket and expect to stay there in 2021, he explained.
The worst-case scenario if they accelerate income into 2020 is that they end up paying the same rate on that income. However, “if rates go up, you’re almost certainly going to be ensnared by those higher rates” to at least some degree, he noted.
Four ways to accelerate income are Roth conversions, asking employers for an advance on a bonus or, if you own a business, accelerating billing or delaying expenses until January.
2. HNW clients may want to accelerate a deduction into 2020.
Some high-net-worth clients may benefit from at least one potential Democratic tax move.