There are several pieces of proposed legislation that could significantly change tax rates and policies for both federal income and transfer (estate/gift/generation-skipping transfer tax) taxes.
While these pieces of legislation are still just proposals and implementation is uncertain, it is important to prepare and not to overreact. However, having a plan in place is worthwhile if some of those changes become law and if those changes would impact your current planning for clients. Below is a partial list of some of the proposals and the potential planning opportunities. It is not meant to be a comprehensive review of proposed legislation: think of it as a provisions snack.
As with any income-tax provision, the ability to control the timing of income recognition is key. Utilizing tools such as increasing pretax retirement-plan deferrals, maxing out Health Savings Account (HSA) contributions, and revisiting deferred compensation amounts can help control wage income. For portfolio income that is not required for ongoing living expenses, a nonqualified deferred annuity can be used for particularly tax-inefficient assets. Additionally, strategic use of charitable gifting and itemized deductions may be beneficial.
As a reminder, these are still proposed changes and may not make it into final legislation, if there is any. The key is to be prepared and in a position to act should any of the proposed changes become law and would have a meaningful impact on planning for your clients.
This material is provided for informational purposes only and should not be construed as investment, tax, or legal advice. Information is based on current laws, which are subject to change at any time. Clients should consult with their accounting or tax professionals for guidance regarding their specific financial situations.
Pacific Life refers to Pacific Life Insurance Company (Newport Beach, CA) and its affiliates, including Pacific Life & Annuity Company. Pacific Life Insurance Company is the issuer in all states except New York. Pacific Life & Annuity Company is the issuer in New York.
This material is educational and intended for an audience with financial services knowledge.
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