The election and your finances

By Terry Savage, Tribune Content Agency on

While the U.S. election focus recently has been on coronavirus, there are some important tax implications that could impact your personal finances. No matter how the vote comes out, you might have just a few weeks to implement some changes because new taxes provisions enacted under the next Congress will likely be retroactive to January 1, 2021.

Let’s take a closer look:

— Income taxes. Biden has repeatedly pledged to increase taxes — but only on returns showing over $400,000 in income. That certainly might affect your taxes if you are taking large required minimum distributions from your IRA while still working after age 72. And for those earning over $400,000, the value of many deductions would be capped at 28%.

The Trump tax plan is more vague, but he has called for lowering some tax brackets for the middle class, and moving some wage-earners down into the 15% bracket. He has already lowered total tax rates by allowing companies to suspend collection of FICA (the withholding tax that funds Social Security) and promising to make that tax cut permanent. Of course, that leaves the future of the Social Security Trust Fund in limbo.

— Capital gains taxes. These taxes on assets sold after being held more than a year currently bear a 20% rate. President Trump has promised to reduce them to 15% and index those rates for inflation. Under the Biden plan, capital gains taxes would increase to as high as 39.9% for those who earning more than $1 million a year. (Housing currently has a $250,000 capital gains tax exclusion for an individual, and $500,000 on a joint return.)

— Estate taxes. You might think these “death taxes” impact only the very wealthy. But when you add up the value of your home, your retirement plans and even your life insurance (if you own it individually instead of in an irrevocable trust), the amounts can add up quickly. Your beneficiaries don’t pay taxes on the money you leave them. But the estate itself may owe taxes. Currently, if your estate is over $11 million, it is exempt from federal taxes. Not long ago, that limit was only $5 million. The Biden campaign pledges to lower the level at which estate taxes apply. And don’t forget that many states have their own estate taxes that start at far lower levels.

— The “step-up” basis. Those who die holding assets — from stocks and savings bonds to houses and other investments — are not taxed on capital gains as they would be if they sold them. Instead, their heirs get a “step up” basis. That means the assets are valued at their worth on the date of the owner’s death. When the heirs subsequently sell the asset, the gain is marked from the value on the date they received it. The Biden plan promises to do away with this “step-up” basis. It’s not only for rich people. If you’ve lived in your house for 50 years, its value today may be 10 times the purchase price. But absent this step up, your children who inherit the house would owe taxes based on the original cost when they sell.


— Tax credits. Here is where the plans get really murky. Both candidates promise they will enact a slew of tax credits. The Trump plan directs those at wealthier taxpayers, while the Biden plan aims at credits for lower-income people. For example, the Biden plan expands the Child and Dependent Care Tax Credit, adjusts the Earned Income Tax Credit and expands various renewable energy tax credits. The Trump plan of credits is mostly designed to help businesses. For example, a ‘travel expense credit” for individuals is designed to help the hotel and airline industry.

Whichever candidate wins, the tax code will get more complex. Of course, Congress would have to pass a new tax law to make these changes. So in the six weeks after the election is decided, tax professionals and estate planning attorneys are going to be extremely busy trying to make appropriate changes before year-end. And that’s The Savage Truth.


(Terry Savage is a registered investment adviser and the author of four best-selling books, including “The Savage Truth on Money.” Terry responds to questions on her blog at

©2020 Terry Savage. Distributed by Tribune Content Agency, LLC.




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