With a global pandemic, a federal election, numerous legislative changes, and a lot of uncertainty, planning for 2020 year end is no small feat. We recently sat down with Naomi Ganoe of our Private Client Services team, and Anna Rathbun of the CBIZ Investment Advisory Services team to discuss what individuals and businesses can do with the information they have available to optimize their tax and financial position.

Here are few of the highlights from their conversation with CBIZ Chief Marketing Officer Mark Waxman.

What does the end of the year look like from the tax perspective?

The end of the year is generally a time where we look at what we can do with their investments as well as their estate plan to hopefully minimize their tax impact for the current year and potentially some future years. There are some timing considerations around income and expense recognition. There's non-required retirement plan distributions, gain on sale of real estate or on investment sales that can be configured in a strategic way based on whether we anticipate the tax rate changes in the new year, and, for the investment side, what the markets might do.

Speaking of, how are things shaping out in the financial markets?

The most recent significant event was the election. The markets were really bracing for a lot of uncertainty there. But several weeks later, looking back, we know that markets have responded fairly positively since the election night. And part of it is having the election behind us provides some sort of certainty.

What are some of the other things or some of the other issues affect the markets?

One blanket statement is that COVID-related developments will be the most influential drivers for the markets…Another item to watch, and it's especially critical, is the results of the runoff election for the two Senate seats in Georgia. So technically, this doesn't take place until January 2021. But there's going to be a lot of noise leading up to this. The way the preliminary results stand, the House has a Democratic majority, but the Senate could either be a Republican majority or it could be split between two parties. That's a very close call. And how that runoff election turns out could mean very different policymaking landscape in Washington.

In terms of tax rate changes or tax changes of any kind, what is worth keeping an eye out for?

At this point, we really don't know what the Senate's going to do. We have to go on what we know now, which is the current tax rates in effect today. We're not necessarily using the time value of money strategy where people are deferring income into the next year or 2021 and accelerating deductions into 2020, as we have done so often in the past. Most of our clients are accelerating income into this year. And that's mainly because we know what the rates are today and we don't necessarily know what the tax rates will be next year. Future changes are uncertain as to whether or not the outcome of the election will change the individual tax rates that were put into place by the 2017 tax reform law or if they will be left to expire at the end of 2025, which is currently set in place.

How do individuals with large estates manage the current uncertainty around the fate of what may happen with the estate tax exclusion?

President-elect Biden's presidential campaign specifically advocated for lowering the estate tax exclusion to $3.5 million, or roughly $7 million for a married couple, and lowering the gift tax exclusion to $1 million or $2 million for a married couple. And that's very different than what the current laws are today. The tax reform law had increased the lifetime estate and gift exclusion to roughly $11.5 million for individuals or roughly $23 million for a married couple.

You can see there's a big difference between what Biden is proposing and what the current law is. So individuals with estates over the exclusion amount, the current $23 million, need to consider if they could transfer out by gifting assets to lower their estate and take advantage of this exclusion that will be decreasing in either 2021 if there's legislation to change it, or 1/1/2026, which is the way it's currently set to revert backwards.

It really comes down to the comfort level. Those that are comfortable giving away the $23 million are doing it this year. You can do this by setting up trusts or other strategies to reduce your estate and use that higher exclusion. Similar to the point about the individual income tax rates earlier, if we have a divided Congress, it's more likely the tax reform laws and their expansion of the gift and estate tax and reducing the thresholds to roughly $23 million will be left to expire at the end of 2025.

Learn More

For the full conversation, listen to the podcast, How the Economic Outlook Affects Year-End Decision-Making.

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