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Tax Advisers in a Bind Over Uncertain Senate Race Outcome

Posted on Nov. 17, 2020

Uncertainty over the fate of the two undecided Senate races in Georgia is leading some tax advisers to be cautious when it comes to year-end tax planning recommendations.

Without a Democratic sweep, taxpayers’ concerns about the prospect of tax hikes early in a Biden administration have lessened, and they may not have as much impetus to take drastic tax planning actions now, like accelerating income.

“I don’t think we’re advising our clients to run out and start looking for ways to increase their taxable income for 2020,” Sharon Kay of Grant Thornton LLP said on a November 16 webcast hosted by her firm.

There are good reasons for tax advisers to be skeptical about the prospect of a transformation in tax policy, according to Dustin Stamper of Grant Thornton. That hinges on the outcome of the two Senate races, but even if Democrats take those seats, at best the Senate will still be evenly split, with Vice President-elect Kamala Harris acting as the tiebreaking vote.

In that scenario, centrist Democrats like Sen. Joe Manchin III of West Virginia “will really moderate what’s possible,” Stamper said.

But that’s not the only reason tax advisers may want to shy away from pushing for major tax action by their clients: Policymakers also have a full plate next year, according to Stamper. A Biden administration and Congress will be busy coming up with economic recovery and stimulus packages responding to the coronavirus pandemic, which could consume the first six to 18 months of the new administration, he said.

“It doesn’t look like tax hikes will be imminent, and even if we did have that takeover, that would be difficult to make as the number one priority,” Kay agreed.

Facing the Facts

Still, there are always some clients that have “very specific fact patterns” that would benefit from year-end tax planning, like those looking for cash and liquidity, Kay said.

Economic downturns often result in bad debt or plant shutdowns, and there can sometimes be ways to accelerate deductions for those or to reduce estimated tax payments, Kay said. Many clients are eyeing net operating losses, along with the five-year carryback Congress provided under the Coronavirus Aid, Relief, and Economic Security Act (P.L. 116-136), she added.

High-income taxpayers may also want to consider moving ahead with year-end tax planning regardless of how the rest of the election results come in.

President-elect Joe Biden didn’t focus on transfer taxes nearly as much as some of his fellow presidential candidates, but he has indicated that he wants to bring the estate and gift tax exemption back down to “historic norms,” Grant Thornton’s Omair Taher said. “So what that all means is that it’s high time to do transfer tax planning,” he said.

Wealthy individuals may not have to worry as much about estate and gift tax changes next year, but even so, the low asset values and extremely low interest rates now make this the ideal time to move wealth even if Democrats don’t get to make their desired changes, Taher said.

“This seems like one of the areas where you might be able to get a little more aggressive,” Stamper agreed, adding that the economic environment has created a “perfect storm for estate planning.”

Follow Jonathan Curry (@jtcurry005) on Twitter for real-time updates.

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