Money Matters

Your Guide to Post-Election Financial Planning

25 Nov 2020 by: Matt Showley  , , , ,

A tumultuous and record-breaking U.S. election has come to an end, implying significant changes coming to the White House and Congress. From a financial perspective, many people wonder how the projected winners will affect tax laws, long-term financial planning, and the future of their investments. Now that Joe Biden is the president-elect, will the tax initiatives his campaign promised come to pass? We’ll discuss what you can expect and how to prepare your post-election financial planning.

Will Tax Laws Significantly Change under a Biden Administration?

The financial world anticipated major changes to tax laws with a Biden win, including higher estate taxes that primarily affect ultra high-net-worth individuals. However, while Democrats will maintain control of the House, without Democratic control of the Senate, we don’t expect Congress will pass many of the tax policies Biden proposed during his campaign. Control of the Senate still hinges on the outcome of Georgia’s special runoff election in January 2021. While it’s possible, it will be a more challenging path for Democrats to secure the two seats needed to create 50 percent control of the Senate and gain an effective edge over decisive chamber votes. 

How Will the Election Outcome Affect Year-End Financial Planning?

As implied above, if Republicans maintain control of the Senate, we expect tax laws will remain mostly unchanged. As a result, you may consider a less aggressive approach to making big changes to your wealth management strategy before year end. For example, you may have contemplated making a large gift as a way to take advantage of a higher estate tax exemption this year. There is less urgency to take action by year-end if the estate tax exemption is unlikely to change as a result of the split Congress. 

In the future, if there is a Democratic majority in Congress, we expect tax rates and estate tax rates to increase for high-net-worth individuals. In this case, it would be critical to adjust your planning. For example, “tax-loss carry forwards” become a more valuable option to reduce your future tax impact if taxes are expected to increase.

Perhaps a more important factor to consider with your year-end planning will be your 2020 and projected 2021 taxable income. Many Americans, including business owners, experienced a lower taxable income year in 2020 due to COVID-19. Businesses saw a loss in revenue or closed entirely, and the CARES Act made exceptions for taking IRA required minimum distributions, which among other factors, contributed to a lower-than-normal income year. If this is your financial situation, there are tax-efficient opportunities you can consider before the end of the year. Strategies include performing a traditional Roth conversion or backdoor Roth conversion if you have substantial 401(k) savings. Or, if you’re a business owner, you might be more proactive about capturing unpaid invoices to pull more income into 2020 while you’re in a lower tax bracket.  Likewise, if a business has a loss this year, you can use those net operating losses (NOLs) to offset income from previous years that might have incurred higher tax rates, or preserve the NOL to use in the future if we expect rates to increase.

The opposite would be true if you predict you’ll be in a lower tax bracket in 2021 as compared to 2020. You then might consider deferring income into next year or increasing your business spending to accelerate your available tax-deductible expenses this year while you’re in a higher tax bracket.

Your individual financial situation, goals, and long-term plans will guide the strategy you choose as 2020 comes to a close. At CCMI, we help clients customize wealth management plans that help give their families security, reduce their tax burden, and make transitions due to their personal needs or global events smoother. We understand 2020 has been a year of change, and with that comes a level of uncertainty. If you have questions or concerns about how recent events will affect your financial future, please contact us, and we’ll be happy to help you navigate your options for more peace of mind. 

CCMI provides personalized fee-only financial planning and investment management services to business owners, professionals, individuals and families in San Diego and throughout the country. CCMI has a team of CERTIFIED FINANCIAL PLANNERTM professionals who act as fiduciaries, which means our clients’ interests always come first.
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Matt Showley is a CERTIFIED FINANCIAL PLANNER™ professional and Accredited Estate Planner®️ who advises individuals, families, and business owners on portfolio management, financial planning, tax and estate planning, real estate, cash-flow modeling, and education planning. In addition to his role as principal and owner, Matt continues to oversee the firm’s operations and work with new and existing clients. Matt joined CCMI in 2006 and has contributed significantly to the firm’s wealth management and financial planning processes and client relationships.

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