One of the most pressing tax issues for Democrats to sort out is an expansion of the SALT deduction, a key political priority for many lawmakers representing high-tax locations in New York, New Jersey and California. Senate Democrats are debating how to make the write-off, currently capped at $10,000 per taxpayer, more generous. But lawmakers disagree about how high up the income scale it should be available.
The House version of the bill calls for lifting the cap to $80,000 regardless of annual earnings, effective from 2021—meaning that taxpayers could claim the deduction on annual returns they file the coming spring. However, to do that, the Senate would need to move quickly to make that deduction available for the filing season, which typically runs from late January through April 15.
Effective Dates
Congress can change the rules mid-season—or even after the deadline—but that would likely create an administrative nightmare, requiring taxpayers to complete amended returns or put pressure on the Internal Revenue Service to proactively process refunds for those taxpayers.
For those who do want to make year-end tax moves, it’s best to stick with “tried and true” strategies that will be beneficial no matter what Congress does, Alvina Lo, the chief wealth strategist at Wilmington Trust, said.
Among them, she says:
• Continue to max out tax-preferred accounts, including 401(k) retirement accounts and health savings accounts
• Look through investment portfolios as the year closes and recognize any losses to offset gains for the year
• Use the annual gift exclusion to give up to $15,000 per recipient and make any additional charitable gifts by the end of the year
• Taxpayers who don’t itemize their tax returns this year also can write off charitable donations of up to $300 as an individual or $600 as a married couple. That benefit expires at the end of 2021
“What you have to do as an adviser is to be the steady hand—do not allow clients to get the headlines into their heads and panic,” Lo said. “No matter what the law becomes, I do feel that we will be able to properly plan for it and around it when the time comes.”
This article was provided by Bloomberg News.