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Post Election Recap – Year-End Planning Has Never Been More Important

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With the 2020 election results coming in over the weekend indicating that Joe Biden is the President Elect and with the probability of the Republicans keeping the majority in the Senate, we are continuing to monitor election related developments regarding potential for tax policy changes. Most tax and political analysts agree that any near-future tax policy change will be more moderate, with a likely Republican controlled Senate and Democratic House. One item that is certain which is in your control regardless of elections is that year-end business and individual tax and financial planning is now more important than ever!

Working with your dedicated team of advisors here at Berntson Porter & Company can help your business and family obtain confidence and clarity on a year-end tax projection. This planning process aims to review year to date activity, discuss end of the year projections, and offer ideas to trim your tax bill come April. For businesses, we can help with cash-flow planning, strategize to strengthen balance sheets, and integrate tax planning at the business level with individual goals.

Below are some year-end planning ideas both individuals and businesses can utilize to close out 2020 with strength:

Individual Strategies To Consider:

  • Consider loss harvesting to offset capital gains realized during the year.
  • Make up short-fall in quarterly estimated tax payments through increased year-end withholding (withholding is treated as occurring evenly throughout the year).
  • Consider tax-deferral strategies such as maxing out retirement plans, Opportunity Zone deferrals, like-kind exchanges of real property, or rollover of Qualified Small Business Stock.
  • Review charitable gifting plans, including use of charitable trusts and Donor-advised funds.
  • Work with your wealth manager to pick tax-efficient investments – tax-exempt income could help reduce overall tax rates along with lower taxed capital gains income/dividends.
  • Review year-end gifts in conjunction with updates to estate planning. Even without tax policy changes, the current life-time gift and estate tax exemption amount is set to sunset in 2026, reverting back to the $5.79 million amount from the current higher exemption amount of $11.58 million.  Gifts to adult children or family members in lower tax brackets may be a compelling strategy.
  • Leverage lower interest rates – consider refinancing mortgages or making inter-family loans while interest rates are at historic lows.

Business Strategies To Consider:

  • CFOs/accountants – Clean up and close September and October financial statements.
  • Realistically forecast revenue and income for the rest of the year.
  • Review loan agreements for covenants and for a preliminary calculation of compliance.
  • Review Year-to-Date (YTD) asset acquisitions and consider planned purchases before year-end, including the potential for bonus depreciation.
  • Review plans to fund tax-deferred business retirement plans including 401k plans, profit sharing plans, and defined contribution plans along with budgeting for cash-flow requirements.
  • Net operating losses – if your business is expecting to show tax losses, work with your tax team here at BP to review carryback claims or carryforward options for refunds.
  • Credits – plan to optimize credits such as the Research & Development (R&D tax credit) for immediate cash savings.

PPP Loans:

A new item to consider as part of the year-end planning process this year is any Paycheck Protection Program (PPP) loans.

If your company received a PPP loan, you’re likely at the end of the 24-week covered period (as calculated from the date of funding). As part of the year-end planning process, now is a good time to assess the amount of allowed expenses paid with loan proceeds (payroll, rent and utilities), and start assessing the forgiveness plan. BP has a team that you can engage to assist in applying for loan forgiveness. See intake form here to get the process started.

We are also closely monitoring any potential changes in legislation, possibly with another round of stimulus, which could impact the potential for tax deductibility of PPP-related expenses.

Washington State Specific Items:

We are also continuing to monitor proposals at the state and local level. In Washington, Governor Inslee is proposing a capital gains tax of 9% (for capital gains over $25,000 for individuals, $50,000 married joint). The new tax would affect around 42,000 taxpayers – about 1.5% of Washington households – in the first few years, raising around $1 billion by fiscal year-end 2021. Sales in retirement accounts, personal residences, and certain farming based business would be exempt. Other states including California and Oregon have also considering similar wealth taxes to close state budget short-falls.

Even in a higher tax rate environment, great results can still be achieved through planning and working with your team here at BP, along with your wealth advisor and estate planning attorney. Stay tuned for continued thought leadership from BP on important year-end planning topics.

Your Berntson Porter advisor will reach out soon to get the conversation started. We are here to help!

Berntson Porter is here to help businesses navigate these challenging times. Visit our Resource Center for up-to-date information about COVID-19 legislation that impacts you and your business.