Estate, tax strategies for an election year


Presidential election years bring more than campaign buttons and nonstop TV commercials  – — they herald the potential of changes in the nation’s tax policy depending on November’s outcome.

This year, the widely different tax platforms of the major parties are creating uncertainty and angst. Without a change in administration, the estate and tax planning landscape likely will offer few major changes in the next four years.

But if Democrats gain control of Congress and the presidency, we may see significant shifts in tax policy that could be retroactive to January 2021. It’s worthwhile to highlight some of their major proposals with an eye to steps you should consider now to take advantage of current tax policies, exemptions and rates.

Potential tax changes

Potential changes under the Democrats could impact income tax, social security taxes and the estate taxes. Proposed changes include:

  • Restoring the 39.6% marginal income tax rate for taxable incomes over $400,000.
  • Limiting itemized deductions to a 28% tax benefit.      
  • Reducing itemized deductions for high-income taxpayers.
  • Nearly doubling the maximum long-term capital gains rate to 39.6% for income over $1 million, a move that would also would apply to most dividends.
  • Expanding the Ssocial Ssecurity tax base to include wages more than $400,000.
  • Increasing the top estate and gift tax rate, which currently stands at 40%.
  • Reducing the temporarily high federal estate, gift and generation-skipping transfer, or GST, tax exemptions earlier than their proposed sunset date of Dec. 31, 2025.
  • Eliminating the rules that “step up” the basis of assets passed at death, which are designed to avoid double taxation.

Seven steps to consider now

If tax policy changes are coming, you have a window of opportunity to create some tax efficiency before the end of 2020. You should consider:

  • Accelerating bonuses and exercising non-qualified stock options this year to capitalize on lower income tax rates and avoid possible Social Security tax on compensation more than $400,000.
  • Converting a Roth IRA to recognize income at this year’s lower income tax rates. 
  • Deferring business expenses to take advantage of higher income tax rates next year.
  • Determining proper timing of itemized and charitable deductions, which might include deferring payment of property taxes or charitable donations.
  • Selling appreciated long-term capital gain assets and deferring the sale of loss assets to take advantage of this year’s low capital gains rates.
  • Making gifts this year to fully utilize remaining lifetime federal estate, gift and GST tax exemptions.
  • Creating a spousal limited access trust, or SLAT, for children or other family members that  permits limited distributions to the trust grantor’s spouse.

Creating this efficiency may involve large and impactful transactions, so you will need thoughtful deliberation to decide if any of the planning strategies above are appropriate for you. While many of these strategies should not be implemented before the election, your contingency planning should be completed before then to allow time for changes by year’s end.

About the author: Jay A. Kennedy is a partner with the law firm Warner Norcross + Judd LLP who concentrates his practice on tax law with an emphasis on planning for businesses and individuals. He can be reached at

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