Unless Congress acts quickly, taxes are going up! Although major tax law changes are set to…
2020 New Year’s Tax Planning Resolutions: Resolve To Plan Better
While we all resolve to go to the gym every day and lose weight, we have compiled a list of 2020 New Year’s tax planning resolutions.
- Beware of 2020 election-year tax uncertainties. It is important to review tax plans and estate plans with all advisors before the upcoming 2020 election. If Democrats win, it is probable that taxes will increase. For example, the estate tax exemption may be reduced, which would lead to an increase in estate tax for many clients. Some clients should consider gifting to the next generation in light of the uncertainty.
- Optimize the 20% qualified business income deduction. The 20% QBI has become a valuable deduction to many small business clients. This tax year resolve to optimize and maximize the deduction for more clients. Strategies include reduction of taxable income to qualify for the deduction, separation of businesses, maximization of wages, strategic changes in business operations, and tax return disclosures to minimize risk.
- Look at your beneficiary designations. Recent changes in the law, including the SECURE act, may impact how taxpayers and their beneficiaries contribute to and benefit from retirement and other accounts. With those changes now on the books, it makes sense to give beneficiary designations another look.
- Review estate planning documents. Estate planning documents are important documents to periodically review. Changes in federal and state estate taxes (New Jersey abolished its estate tax 2 years ago) may have an impact, and even if they do not, there may be a reason to adjust for new goals or major life changes (think new children, health changes, etc.). Old insurance trusts or credit shelter trusts may no longer be needed, or may now require more flexibility, while trusts drafted with stretch IRA provisions may need to be revised.
- Ask the right questions, including those focused on foreign accounts. The IRS has publicly stated that foreign accounts tax compliance is a priority in enforcement. In 2019, the IRS announced that it began mailing warning letters to certain targeted taxpayers who may have foreign accounts (remember FATCA). Failure to report foreign accounts, or reporting them incorrectly, can have serious consequences, including high civil and criminal penalties. Since these issues are important, and often overlooked, client advisors and clients should be having discussions about foreign accounts (and the steps needed to become and remain compliant) early in the tax year.
New Year’s is always been a time of making resolutions. However, there are few of us who make tax planning New Year’s resolutions. Do not procrastinate. Make these resolutions even if they are unpleasant or time-consuming. Proper planning can result in security, peace of mind, tax benefits, and family harmony…and most importantly, happy clients!