Wall Street has already braced for a year of disruption in Washington. We’re giving you a chance to ask experts what your clients need to know.
It’s been a long and bitter political cycle and while I understand that many say it isn’t over, the window to overturn the results is closing fast.
The Electoral College meets on December 14. After that, the future is sealed. Big money is already keeping an eye on potential tax havens.
But with so much fake news circulating and the clock ticking on 2020, it’s hard for your retail clients to see where they stand.
That’s why we’re running a webinar on December 17. Registration is HERE.
The premise is simple. Michael Kitces has kept his eye on the advisory landscape across multiple presidential cycles.
The format is even simpler. He’ll talk about what he sees on the horizon and how to counsel clients ahead of the coming tax year.
You’ll get a chance to pick his brain.
He knows how the policy process realistically works and how fast things can actually change in Washington even when one party has a blank check.
As a result, he’s going to have great things to say about how much the high-net-worth financial planning landscape shifts after any election . . . and how much it doesn’t.
After all, taxes and mortality are universal and inevitable. Your clients will need to pay the IRS and the reaper sooner or later.
The only questions from year to year revolve around ways to protect them when the bill comes due: timing, rates, exceptions, extensions. Increments.
While clients are alive, it’s almost never an all-or-nothing thing. And I have an extremely strong sense that the coming years in Washington are going to look a lot like the past.
Whether the Senate splits 51-50 or 53-48 doesn’t really matter. They’ve proved they can’t or won’t rock the policy boat no matter how the votes stack.
And without a decisive mood in the Senate, the House is really just noise. We’ve seen that play out over the last few years.
Inertia plus noise is not a historical recipe for revolution no matter who is in the White House. People can say that it is, but it isn’t.
Maybe in a decade the seeds of dramatic change will sprout. But the process will be incremental, and that’s the point of any tax-sensitive financial plan.
Superstar accountants have been telling me for years that there just aren’t a lot of urgent do-or-die moments in the tax world.
You take advantage of the breaks you get every year, locking in favorable rates and deferring big hits where you can. Every year the rates shift a little.
Maybe they shift a few percentage points in an especially dramatic year when Congress is united and desperate to do something big.
Then they change again. It’s a random walk like the market.
How do you protect your clients in the long term? Same way you protect them from a bad random walk on Wall Street.
The lurid and the likely
The worst-case scenario right now is that sometime in the next two years the high end of income tax reverts to 39.6%, which effectively doubles current inflation on normal earnings.
It stings, but we know it’s survivable. You know what to do. As the IRS takes a bigger bite out of earned income, pivot as much as you can to passive activities taxed at lower rates.
I’ve had analysts tell me point blank that they heard somewhere that capital gains rates are going to the moon. Get real. Nobody in any policy office who even knows the difference between active and passive income is going to mention it.
Maybe a guy from Delaware is suddenly going to starve investors and then for an encore he’s going to raise corporate taxes to nightmare levels. Crazy things happen.
And maybe if he tries, Congress will ignore it.
Then there’s the estate tax, state income tax deductions and all the critical minutia that add value to client outcomes.
You just need to keep your eyes open and keep doing the math. Let them know if anything changes if the political rhetoric ever crystallizes into actual numbers.
The important thing is that another tax year is ending. Kitces will coach you on the conversations you need to have before the calendar turns over.
December 17. Registration is HERE.
Twelve months from now, we’ll get to have these conversations again.
And maybe in the next decade, your clients won't even recognize the financial landscape. In that scenario, I hope you kept your eyes open on their behalf.