Strategic Tax Planning in Anticipation of Upcoming Election-Related Tax Law Changes

As the US presidential election draws near, the political landscape is more turbulent and unpredictable than ever. With candidates clashing on critical issues such as taxes and voters navigating a maze of information and misinformation, the stakes are extraordinarily high. This election promises to be a pivotal moment in American history, with the potential to shape the nation's future in profound ways. Taxpayers therefore should consider the following strategic adjustments to optimize their financial position in light of potential changes in tax law related to the upcoming election:

1. Roth IRA Conversions:
   • Converting assets from traditional IRAs to Roth IRAs before the sunset may be advantageous.
   • This involves paying taxes on current IRA assets now, enabling tax-free withdrawals of both principal and growth after a five-year holding period.
   • With expected higher tax rates post-sunset, executing Roth conversions before January 1, 2026, could result in significant tax savings.
2. Timing of Ordinary Income:
   • Taxpayers with flexibility in the timing of ordinary income, such as compensation, should consider accelerating income into a tax year preceding the sunset.
   • This strategy allows taxpayers to benefit from potentially lower tax rates available before the tax law changes take effect.
3. Deferral of Deductible Expenses:
   • Consider deferring expenses categorized as miscellaneous itemized deductions until after the sunset, when these deductions are anticipated to be reinstated.
   • This approach can maximize the tax benefit of these expenses.
4. Charitable Giving:
   • Individuals contemplating substantial cash donations to public charities should make these contributions while the current 60% deduction limit is in effect.
   • This ensures maximum tax deductibility for charitable contributions.
5. State Tax Considerations:
   • Taxpayers evaluating a move to a state with higher taxes may find it advantageous to postpone relocation until after the sunset when deductions for State and Local Taxes (SALT) are less constrained.
6. Consultation with Tax Advisors:
   • Higher-income taxpayers should engage with their tax advisors to assess the impact of phased-out credits and deductions on their tax liabilities.
   • Understanding how the Alternative Minimum Tax (AMT) may nullify certain deductions post-sunset is crucial in developing a comprehensive tax strategy.

Contact Cambaliza McGee LLP for business and personal tax planning. We can help you with navigating the current tax landscape.