Sunday, November 24, 2024

How the upcoming election could affect your taxes

In an election yr, my retired and soon-to-be-retired clients typically wonder what a Republican or Democratic victory will mean for the stock market. This time, they will not be concerned in regards to the direction of the stock market, but moderately the long run of federal income taxes. The Tax Cuts and Jobs Act (TCJA) expires at the tip of 2025, and the final result of the November election would require changes to the U.S. tax code that might significantly increase annual tax obligations and total lifetime tax liability for some taxpayers. The provisions of the TCJA set to run out include lower federal income tax brackets, the next standard deduction, and a doubling of the estate and gift tax exemption, amongst others.

Where do the candidates stand on this issue? Republicans say they need to keep up the established order and extend the TCJA tax breaks. They also support cutting taxes for firms and small businesses. Democrats, then again, have advocated phasing out the TCJA for high-income taxpayers and rolling back everlasting tax breaks for firms.

What happens to taxes will depend on which party is within the White House and who controls Congress. If Trump is elected and Republicans have a majority in Congress, I believe we are able to expect taxes to stay flat for the following few years. If Harris wins the White House and Democrats have a majority within the Capitol, I believe taxes will go up. If we get a divided Congress with control of the 2 branches of presidency split, I expect we’ll see lots of compromise.

A divided Congress normally results in gridlock on Capitol Hill, which is usually positive for the stock market. One-party rule within the White House and Congress normally sets the stage for change, creating uncertainty in regards to the future and resulting in greater market volatility on Wall Street.

Regardless of who becomes president, higher taxes are likely in the long term

No matter who wins the race in 2024, I believe we are going to ultimately see higher taxes. After this election cycle, there isn’t any option to address the issues with Social Security and reduce the budget deficit without raising taxes or increasing the retirement age. The latter could be a really unpopular move and can be avoided in any respect costs, making higher taxes the one viable option.

Consider a Roth conversion now

Given this prediction, I counsel older clients with retirement savings to think about a Roth conversion this yr. By accelerating their tax payments on future qualified plan distributions, I consider they can be leaving much less of their hard-earned savings to the federal government. Loads can occur within the U.S. tax code throughout the 25- or 30-year lifespan of the typical retiree. From my vantage point, I see taxes going up over the long run, not down, so I prefer to think about a client’s lifetime tax liability moderately than their annual tax liability.

A competitive election offers freedom of selection

We have two presidential candidates who’re incumbents with a track record of success, so we are able to make some educated guesses about what they may do within the White House. I see Trump because the pro-business, lower-tax candidate, so I think he can be higher for the economy, assuming no external events like a terrorist attack or banking crisis occur. Note that I said “better for the economy,” not the stock market. In my opinion, the direction of the stock market will likely rely on what the Fed does with rates of interest, no matter who wins the presidency.

Now, that doesn’t suggest I’m for Trump or for Harris. The economy and taxes are only two of many aspects that have to be considered when selecting a candidate. Each of us goes into the voting booth with different priorities and values, and that is why a contested election is such a ravishing thing.

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