(Dow Jones) With another election in the books, financial advisors are breathing a sigh of relief. Not because the Republicans won the House or the Democrats kept the Senate, but because many hope a host of tax issues the government has been too timid to deal with will soon be settled.
While nations of financial advisors cover the political spectrum, many share a common frustration: In the run-up to the midterms, neither party seemed willing to make tough decisions on pressing questions surrounding dividends, capital gains or inheritances. That uncertainty has in turn made it very difficult for them to give concrete advice to clients.
"There have been a lot of decisions that were tabled," said Michael Joyce, a financial advisor in Richmond, Va. "We need to get some clarity."
Forefront in many advisors' minds is the tax rate on dividends. Certain dividend payments once treated like other income are now taxed at a lower rate, putting them more closely in line with capital gains. The benefit is set to expire next year, meaning the rate on these dividends would jump to a maximum of 39.6% from 15% if nothing is done. President Barack Obama's budget has called for a top tax rate on dividends of 20%. While some Democrats wanted a bigger increase, Republican gains in the House, at first blush, make that seem unlikely.
Whatever the solution, Joyce said he wants to know sooner rather than later so he can decide on moves like whether or not to shift dividend-paying stocks out of plain-vanilla brokerage accounts and into tax-advantaged savings vehicles like individual retirement accounts.
The estate tax is another hot topic. Over the past several years, rates have steadily fallen, while the exemption, the dollar amount at which an estate qualifies to be taxed, has climbed. This year, amid the tense political stand off, the tax lapsed entirely. It resumes next year, when the top rate on estates of more than $1 million will be 55% unless lawmakers make a change.
Portland, Ore., financial advisor Jim Corbeau said he expects Congress will eventually come up with some kind of compromise, but in the meantime tax planning decisions, like how to split family assets between various trusts when one spouse dies, have been difficult.
"Financial advisors like certainty and predictability," he said.
Reston, Va.-based financial advisor Joel Ticknor, who is worried about rates on dividends and capital gains--capital gains rates are slated to increase to 20% from 15% next year unless Congress intervenes--said time is running out for tax planning purposes.
"In my opinion it's a failure of government to have such uncertainty 58 days from the end of the year," Ticknor said. He wants to make decisions, such as whether to sell assets and register capital gains in 2010 or wait and register them in 2011, as soon as possible. He said he hopes the lame-duck Congress will settle some issues by year end. But he also believes partisan wrangling means answers aren't likely until December.
"An outside observer can see the logical place where lines would be drawn" for a compromise, he said. "But both parties will fight tooth and nail" to get there.Copyright (c) 2010, Dow Jones. For more information about Dow Jones' services for advisors, please click here.