As we approach the end of 2020 and the upcoming election, it is important to understand what effect the election may have on your specific tax situation. Regardless of the outcome of the election, changes in tax law and policy are likely as we move into 2021. Before the end of 2020, it’s important to meet with your Warren Averett advisor and consider how potential changes might affect you. Some items to consider include:
- Estate and Gift Tax Planning – The current estate and gift tax law, including the exclusion amount, may undergo changes regardless of which party prevails in November. For 2020, each individual can give up to $11.58 million in cumulative lifetime gifts (exclusive of annual exclusion) without incurring gift tax. It’s important to discuss any potential strategies with your advisor and to be prepared to implement a plan of gifting to take advantage of any year-end opportunities that may benefit you.
- Tax Rates – The Tax Cuts and Jobs Act that was passed at the end of 2017 lowered both individual and corporate tax rates and instituted other tax cuts such as the Qualified Business Income Deduction. For 2020 the maximum individual tax rate is 37% (down from 39.6% previously) and the maximum capital gains rate is 20%. In addition, the corporate tax rate is currently at 21%. You should review your business operations with an advisor to see if there are any strategies that need to be implemented before year end.
- Charitable Giving – The CARES Act, passed earlier this year, made changes intended to encourage charitable giving. For individuals who are able to itemize deductions on their tax return (including couples filing a joint return), you can deduct qualified cash charitable donations limited to 100% of your adjusted gross income (AGI), for donations made in 2020. Under previous law, such contributions were included in the 60% of AGI limit. Donor-advised funds are not eligible for this special increase in the limitation. For individuals taking the standard deduction on your tax return, you can deduct up to $300 in annual cash charitable contributions as an above-the-line deduction. Donations made to a donor-advised fund or private foundation do not qualify.
If you have any questions, need assistance or would like more information about how any of these tax situations may impact you, please connect with your Warren Averett advisor, or contact a member of our team.