Coronavirus wreaked havoc on the U.S., including employment, retirement plans and taxes. Though we’ve passed the new July 15th tax date, for many, taxes and all the questions surround them remain to loom over their heads. While COVID-19 is getting worse in some (or a lot) states, American’s can’t help but continue to wonder about what is to come, financially. The economy’s road to recovery could be a long one, so what should you do?
Sure, the July 15th filing and payment date was helpful for many, but it’s what happens next that can dictate the financial future of many. The thing is, nothing is set in stone and there are many variables that can influence next year’s taxes. The 2020 presidential election may bring a new administration that could revoke the Tax Cuts and Jobs Act (TCJA). The uncertainty is what leaves people uneasy and turning to trusted resources for answers. While many seek peace of mind during this time, Regent Wealth Management has done the due diligence necessary to help others during these uncertain times.
Will tax rates rise?
All data points to YES. It’s WHEN that is the question. As history shows, during WWII, the tax rate rose to 94% and took years to drop below 91%. This is just an example of how historical periods in time influence taxes. The continued growth of the Baby Boomer population, 10,000 people a day turning 65 in the United States according to AARP International, increases the number of people taking Social Security and Medicare. The pressure on our budget outpaces our ability to pay. Our federal debt continues to grow, in April 2020 reaching the highest level since WWll.
We believe there are still ways to secure a lower tax or a zero tax future, but planning is key. Holistic planning should focus on taxation in the short term and the long term.
So what does this mean?
We should expect that post-pandemic taxes will differ from the aforementioned WWII tax repercussions. This time around, there’s a better chance that instead of just cranking up the top individual rate, we see something more widespread occur. If we just let the TCJA expire, December 31st of 2024, all tax tables go back up to 2017 rates. Perhaps it’s a moderate increase, but how far will it continue to go? We may also see long-term capital gains and dividends have higher rates. As the elections approach, there are additional tax plans floating around that could be our future, but until we know who will be POTUS for the next four years, it leaves the people of America with more uncertainty.
The bottom line
There’s still an immense level of uncertainty of what is going to happen post-pandemic, many of which we are not in control of. The economy is at the forefront and taking the brunt of it as we watch our retirement savings and other investments closely.
The best thing we all can do is hope for the best but expect the worst, especially with the elections ahead, another whirlwind that affects the economy. But for now, if you’re concerned about taxes, contact your advisors for guidance in protection and planning.