After eight months since the first reported coronavirus case in the United States, election year 2020 has been a rollercoaster of emotions due to uncertainty.
The 2016 presidential election showed us that polls really don’t predict the outcome of an election. Many people don’t trust the news anymore. Political norms are disappearing. This has all added to the angst about what’s going to happen in the presidential election next month. And who knows what’s going to be happening with the coronavirus pandemic at that point because as of this writing, schools are starting to reopen around the country, and cases yet again, are on the rise.
Despite the uncertainty, the fact remains: the outcome of the 2020 presidential election and the CARES Act passed to aid Americans and their businesses have tax implications for your clients.
We can’t predict the future, but we can prepare for it, and nobody knows that better than financial planners. Here are some tax planning strategies to help your clients prepare for next tax season:
Familiarize yourself with candidates’ tax plans and prepare for either case. If Joe Biden is elected president, federal tax policies are going to change. The Tax Foundation is a resource where you can find the possible tax plans under a Biden presidency. You can use this information to see where you may need to make changes to your clients’ tax plans should Biden win next month. See the resource at taxfoundation.org/2020-tax-plans.
Consider Roth IRAs. If your younger clients don’t have Roth IRAs yet, Financial Advisor magazine recently reported in the article “Tax Planning in Uncertain Times,” that it’s a good time to get them to open one up. ThinkAdvisor adds in the article, “3 Tax Planning Strategies to Consider Now,” that if your clients already have an IRA, they should consider converting it to a Roth IRA should tax rates rise next year. Plus, incomes may be lower now due to job losses or pay cuts.
Plan for taxes on unemployment benefits. If your client was unemployed during the pandemic and received unemployment benefits with the added $600 a week from the CARES Act, that income is taxable. If they didn’t choose to withhold taxes, then they need to plan to pay those taxes come tax time.