From changing brackets and penalties to increased estate-tax thresholds, next year will see tax changes for wealthy clients.

Several federal scenarios could impact wealthy individuals both positively and negatively, according to Stan Gregor, CEO of Summit Financial in Parsippany, N.J. “The current political landscape and outcome of the 2020 elections will have a lot to do with how these changes play out,” he said.

Changes in estate and income taxes will have a particular impact. “With income taxes, the tax brackets are indexed, so next year they’re going to go higher,” Gregor said. “It’ll be key for advisors to look at their clients’ portfolios to see if there is anything that can be thrown into a future year.”

Another advisor also stressed the need to pay attention to the new IRS thresholds.

“The most important tax law changes that impact high-net-worth clients are the new tax brackets,” said Gail Rosen, a CPA in Martinsville, N.J. “The tax rates were generally lowered and the thresholds increased, especially for wealthy individuals.”

For example, the top bracket for married couples in 2017 was 39.6% for couples whose taxable income exceeded $470,700. For 2020, the top bracket is 37% for the same filers, with the new income threshold being $622,051. 

Among IRS 2020 inflation adjustments were three-figure bumps for the standard deduction across all filing statuses. The estate exemption will increase $180,000, to $11.58 million. (The annual exclusion for gifts remains $15,000). The IRS also upped the maximums for retirement account contributions.

The mandate penalty for not having health insurance has disappeared, “so those who have the income to self-insure without having a policy that’s ACA-qualified won’t have to pay for not having health insurance,” said Brian Stoner, a CPA in Burbank, Calif.

State-level changes need watching. California, for instance, enforces a tax penalty for those wiht no health insurance, Stoner said.

A major consideration is the higher standard deduction, according to Lawrence Pon, a CPA/PFS/CFP at Pon & Associates in Redwood City, Calif. “This means more strategic planning [in terms of] which years for our clients to itemize,” he said. “We’re suggesting that our clients bunch deductions so they can itemize every other year. With the stock market at record highs, it may also make sense to transfer highly appreciated securities to donor-advised funds. For our business-owner and landlord clients, we need to review the new [20%] qualified business income deduction.”

The Setting Every Community Up For Retirement Enhancement (SECURE) Act of 2019 is another potentially big change, added Dean Mioli, a CPA, CFP and director of investment planning at Independent Advisor Solutions by SEI in Oaks, Pa. The bill passed the House but it is bogged down in the Senate.

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