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A Different Degree of Wealth

Understanding Tax Policy and Its Potential Impacts from the Upcoming Election

As a financial advisor, staying informed about tax policy changes is essential, especially as we approach an election year. Tax policies can significantly impact personal finances, investment strategies, and overall economic conditions. This article explores current tax policies and how potential changes in government could affect them.

 

Income Taxes: Possible Adjustments

One of the central elements of any tax policy discussion is the structure of income taxes. The current system in the U.S. has seven federal income tax brackets, with rates ranging from 10% to 37%, depending on income levels. While neither political party has unveiled specific proposals yet, previous elections have shown that income tax rates are often subject to change following an election.

For Individuals

Proposals that focus on adjusting income taxes may tend to affect taxpayers differently based on their income levels. Taxpayers in higher brackets may face potential increases, while those in lower and middle-income brackets might see tax relief. In the past, tax cuts have been a tool for stimulating economic growth, while tax increases for high-income earners have been proposed to fund public services or reduce the national debt.

 

For Families

Tax credits and deductions, such as the Child Tax Credit and Earned Income Tax Credit (EITC), have historically been key elements of tax policy for families. Changes in these areas may result in either an expansion or reduction of benefits, depending on the direction tax reform takes after the election. Families should pay attention to potential modifications to these credits, as they can directly affect disposable income and financial planning.

Capital Gains Taxes: Potential Shifts

Capital gains taxes are another area that might see shifts depending on the outcome of the election. Currently, long-term capital gains are taxed at 0%, 15%, or 20%, depending on income levels. Short-term gains are taxed at ordinary income rates. There has been speculation in the past about whether future administrations may raise capital gains tax rates, particularly for higher-income earners.

 

Impact on Investors

If capital gains tax rates are increased, it could potentially affect investment strategies. Investors might consider holding assets for longer periods to defer taxable events or shifting portfolios toward more tax-advantaged accounts, such as retirement accounts. Conversely, if capital gains tax remains unchanged, there may be less incentive to alter investment behavior.

For investors, understanding how changes in capital gains tax policy could affect your portfolio is critical for making informed decisions. Working with us to review your portfolio ahead of potential changes may help you mitigate the impact of any increases in capital gains taxes.

 

Corporate Taxes: A Possible Area of Focus

Corporate tax rates are often a point of debate during election cycles, as they directly affect businesses of all sizes. The current corporate tax rate is set at 21%, which was reduced from 35% following the 2017 Tax Cuts and Jobs Act (TCJA). Whether this rate will remain the same or see adjustments is a question that may hinge on election results.

 

Business Impacts

Changes in corporate taxes could potentially have a broad impact on the economy, including businesses’ ability to invest in growth, hiring, and innovation. If corporate tax rates are increased, businesses may face higher costs, which could affect profits and potentially lead to reduced stock prices for shareholders. Also, increasing corporate taxes could lead to higher consumer prices. On the other hand, if corporate taxes are reduced or remain the same, businesses might continue to benefit from a more favorable tax environment.

Small businesses and entrepreneurs should be especially mindful of any potential changes to tax credits or deductions that may be affected by corporate tax policies. This includes deductions for research and development (R&D) and other business-related expenses that help lower taxable income.

 

Estate Taxes: Potential for Changes

Estate taxes, which apply to the transfer of assets after death, may also be subject to changes following the election. Currently, the federal estate tax exemption is $12.92 million per individual in 2024, with a 40% tax rate on amounts above that threshold. There has been discussion in the past about potentially lowering the estate tax exemption, which could result in more estates being subject to the tax.

 

Estate Planning Considerations

For high-net-worth individuals and families, estate tax planning is a critical aspect of long-term financial strategy. If the estate tax exemption is reduced, more estates may face taxation, which could result in increased costs for heirs. In this case, reviewing estate plans and considering advanced strategies such as trusts or gifting may be important for minimizing tax liabilities.

However, it’s important to note that any potential changes to estate taxes may take time to be implemented. Monitoring the situation closely and consulting with an estate planning professional can help you stay prepared for any potential adjustments.

 

Retirement Accounts and Health Care: Other Potential Areas of Impact

While income taxes, capital gains, corporate taxes, and estate taxes tend to receive the most attention during election cycles, other areas of tax policy may also be affected by the outcome. Retirement accounts such as 401(k)s, IRAs, and Roth IRAs are often reviewed for potential tax changes. There may be proposals to adjust contribution limits, tax deferral benefits, or required minimum distributions (RMDs).

Additionally, Health Savings Accounts (HSAs) could potentially see changes depending on tax policy decisions. HSAs offer a triple tax advantage—contributions are tax-deductible, earnings grow tax-free, and withdrawals for qualified medical expenses are not taxed. Any adjustments to tax policies surrounding health care could have implications for how these accounts are used and managed.

 

How to Prepare for Potential Tax Policy Changes

While it’s impossible to predict exactly what will happen with tax policy after the election, there are steps you might consider preparing for possible changes:

  1. Stay Informed: Understanding the potential changes to tax policy and how they may affect you is essential. As the election draws nearer, more detailed proposals may be released, giving you a clearer picture of what to expect.
  2. Review Your Financial Plan: With potential changes on the horizon, it may be helpful to review your financial plan, especially regarding investments, retirement accounts, and estate planning. Ensuring that your strategy is flexible enough to accommodate tax policy adjustments can provide added security.
  3. Consider Tax-Advantaged Accounts: Utilizing tax-advantaged accounts such as IRAs, 401(k)s, and HSAs may help protect your savings from potential tax increases. Maximizing contributions to these accounts may offer tax deferral benefits and allow you to manage taxable events more effectively.
  4. Work with Us: Navigating potential tax policy changes can be complex, and working with us may help you assess how these changes could impact your financial goals. We can guide you through strategies that might allow you to remain tax-efficient in a shifting tax environment.

 

Conclusion

The upcoming election may bring changes to tax policy that could potentially affect individuals, families, businesses, and investors. While the exact outcomes are uncertain, it’s important to stay informed and consider the potential implications for your financial plan. Tax rates, capital gains taxes, corporate taxes, estate taxes, and other areas may all be subject to adjustments depending on the results of the election.

By understanding the possible changes and preparing for them, you can position yourself to navigate these shifts with confidence.

If you have any questions or want to learn more about taxes and the potential impact it may have on your financial plan, feel free to give us a call. You can also check out Chapter 6 of ‘Wealth on Purpose’ by Bryan Ballentine for more information.

 

Sources: Located at the bottom of article


 

 

Golf Tip of the Week:

Rules of Golf Review: It drives me crazy when my opponent puts a marker in front of his ball on the green. Can you do that?

The intent here is not to introduce a new generation of golfers to a classic way to (cough) cheat. Rather, it’s a friendly reminder to be on the lookout for a small handful of players prone to take some liberties when it comes to marking their golf ball on the putting green.

 

The offending action? These golfers place a ball marker down in front of the ball, not behind it. We’ll explain the legalities of this practice in a moment. But in terms of the deception, let’s assume you didn’t notice how they marked. They’re banking on you being oblivious, so when it comes time to replace the ball, they put it down in front of the marker, positioning themselves closer to the hole then when the ball came to a stop on the green. It might not amount to much in terms of the outcome of the ensuing putt—an inch or two perhaps—but it does put their ball slightly closer to the hole and, most importantly, in the wrong place.

 

Under the Rules of Golf, if they hit the putt, you can call them out for violating Rule 14.7 (playing from the wrong place). It’s a two-stroke penalty (stroke play) or loss of hole (match play). In stroke play, in addition to the penalty, you have to replay the stroke if it’s considered a serious breach of the rule. A serious breach occurs when the player gets a significant advantage in playing from the wrong place. Could the cheater argue that moving the ball an inch closer to the hole did not provide a significant advantage? Sure, but go ahead and try that argument with the committee and we’ll see how it goes.

 

OK, with that out of the way, let’s get back to the annoyance at hand. You’re playing with someone who puts a ball marker down in front of the ball on the line of putt. Is that legal to do?

 

Yes, under Rule 14, you can mark a ball anywhere on the golf course so long as the mark is behind the ball or “next” to it. “Next” can mean to the side of it or even to the front of it. The key here is to replace your ball in the exact spot where it was lifted.

 

This rule (known at the time as Rule 20-7c) famously came into play for Lexi Thompson at the 2017 ANA Inspiration. Thompson was assessed a four-stroke penalty mid-way through her Sunday final round. The violation occurred during Saturday’s third round, TV cameras showing Thompson re-placing her ball on the green in the wrong spot from where it stopped originally. LPGA officials didn’t become aware of the issue until Sunday when informed by a call-in from a viewer and ended up penalizing Thompson two strokes for playing from the wrong spot and two strokes for signing an incorrect scorecard. Thompson would ultimately lose the tournament in a playoff to So Yeon Ryu. Later that year, the USGA and R&A and major pro tours adopted a policy that it would no longer take calls as part of a change in how its video review protocols.

 

So if that golfer is driving you nuts by placing his ball marker down in front of his ball, just make sure he’s putting it back in the same spot each time.

 

Golf Tip adapted from golfdigest.com i


 

Recipe Tip of the Week:

Chicken and Dumplings

Ingredients

Chicken and Stock:

1 (3 to 31/2 pound) whole organic chicken

2 bay leaves

6 sprigs thyme

4 to 5 black peppercorns

1 head garlic, split through the equator

2 tablespoons salt

 

Buttermilk-Chive Dumplings:

2 cups all-purpose flour

1 tablespoon baking powder

1 teaspoon salt

2 eggs

1/4 cup chopped chives

3/4 to 1 cup buttermilk

 

Sauce:

2 bay leaves

2 tablespoons butter

2 tablespoons oil

2 carrots, diced

2 stalks celery, diced

2 cloves garlic, minced

1/4 cup all-purpose flour

6 cups chicken stock

1 cup frozen peas

1 cup frozen pearl onions

1/4 cup heavy cream

Freshly ground black pepper, for garnish

Chopped chives, for garnish

 

Directions

For the stock:

  1. Place the chicken and all stock ingredients in a large Dutch oven and cover with water. Set over medium-high heat and bring to a boil. Reduce heat to a simmer and cook for 1 hour until the chicken is tender. Skim the surface of fat and scum as it cooks.
  2. When done remove the chicken to a cutting board. Strain the stock and shred the meat into big pieces – the stock will be used for the sauce and the chicken will be folded into it.

For the dumplings:

  1. Sift the dry ingredients together in a large bowl. In a small bowl, using a whisk, lightly beat the eggs, chives and buttermilk together; pour the liquid ingredients into the dry ingredients and gently fold. Mix just until the dough comes together; the batter should be thick and cake-like.
  2. To prepare sauce: In a Dutch oven, over medium heat, add the butter and oil. Add the carrot, celery, garlic, and bay leaves and sauté until the vegetables are soft, about 5 minutes. Stir in the flour to make a roux. Continue to stir and cook for 2 minutes to coat the flour and remove the starchy taste. Slowly pour in the chicken stock, 1 cup at a time, stirring well after each addition. Add frozen peas and pearl onions.
  3. Let sauce simmer until it is thick enough to coat the back of a spoon, about 15 minutes. Stir in heavy cream.
  4. Fold the reserved shredded chicken into the sauce and bring up to a simmer. Using 2 spoons, carefully drop heaping tablespoonfuls of the dumpling batter into the hot mixture. The dumplings should cover the top of the sauce, but should not be touching or crowded. Let the dumplings poach for 10 to 15 minutes until they are firm and puffy. Remove and discard the bay leaves. Season with freshly cracked black pepper and garnish with chopped chives before serving.

 

 

Recipe Tip adapted from foodnetwork.com ii


 

 

Travel Tip of the Week:

A Guide to United Airlines Baggage Fees — Including Tips on How to Save Money

Getting caught with an unexpected baggage fee is more than just a nuisance — it’s a potentially costly mistake. Luckily, it can be avoided with a little planning. Using United Airlines’ DIY online tool, as well as taking advantage of their prepay program, you’ll be able to knock a few dollars off the cost of flying. Use the extra money to buy yourself a souvenir while traveling — just make sure you don’t go over the weight limit (50 pounds per checked bag) on your way home.

 

Is there a baggage fee?

 

When it comes to flying with United Airlines, planning ahead can save you money. The airline offers customers the option to prepay for their checked bags. So, rather than checking your bag at the airport, log in up to 24 hours before your flight, and you’ll save $5 per item. For instance, if you’re flying economy on a domestic route, you’ll pay $30 versus the usual $35 checked bag fee. A second bag costs $45, but if you prepay, it’ll come out to $40, and so on.

 

Meanwhile, on all international flights (Europe, Asia, Australia, South America, and Africa), your first checked bag is complimentary. A second checked bag will incur a fee, but the charge varies according to where you’re flying. United’s website offers a handy baggage calculator to help you determine the cost. Generally, a second checked bag will set you back $45 on domestic flights, $60 if you’re flying to Mexico, and $100 if you’re going anywhere in Europe, Australia, or parts of Asia. Again, the fee drops by $5 if you check your bag ahead of time.

 

What’s included in the baggage fee?

 

United allows one carry-on and a personal item for all passengers in economy class. Be sure that both items fall within maximum dimensions (9 x 14 x 22 inches for a carry-on bag; 9 x 10 x 17 inches for a personal item) to avoid having to check them and possibly pay a fee. Small musical instruments and collapsible strollers both count as carry-on items.

 

What’s the catch?

 

As always, a basic economy ticket restricts what you’re allowed to bring on the plane. In this case, basic economy passengers may tote a personal item, but a carry-on bag must be checked; if they catch you trying to board with one, you’ll incur a $25 gate handling fee. The exceptions to this rule are international flights to Europe, Asia, Australia, and Africa, where a carry-on bag is complimentary.

 

Basic economy passengers, beware: Checked bags fall under an entirely different set of rules and fees. For instance, on a flight to Paris, your first checked bag will cost $70, and $45 if you’re heading to Rio de Janeiro. For exact pricing on baggage fees associated with basic economy tickets, use the baggage calculator.

 

If you frequently fly overseas, consider signing up for United’s loyalty reward program, MileagePlus. Members with status typically receive one free checked bag, and often two. You’ll also end up with more wiggle room: Whereas the standard weight limit on United is 50 pounds, MileagePlus Premier Silver, Premier Gold, Premier Platinum, Premier 1K, and Star Alliance Gold members can check bags weighing up to 70 pounds.

 

Travel Tip adapted from travelandleisure.com iii


Copyright © 2021. Ballentine Capital Advisors. All rights reserved.

 

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Ballentine Capital Advisors
15 Halton Green Way
Greenville, SC 29607

 

Sources:

 

Disclosure:

Ballentine Capital Advisors is a registered investment adviser. The advisory services of Ballentine Capital Advisors are not made available in any jurisdiction in which Ballentine Capital Advisors is not registered or is otherwise exempt from registration.

 

Please review Ballentine Capital Advisors Disclosure Brochure for a complete explanation of fees. Investing involves risks. Investments are not guaranteed and may lose value.

 

This material is prepared by Ballentine Capital Advisors for informational purposes only. It is not intended to serve as a substitute for personalized investment advice or as a recommendation or solicitation or any particular security, strategy, or investment product.

 

No representation is being made that any account will or is likely to achieve future profits or losses similar to those shown. You should not assume that investment decisions we make in the future will be profitable or equal the investment performance of the past. Past performance does not indicate future results.

 

Advisory services through Ballentine Capital Advisors, Inc.

ihttps://www.golfdigest.com/story/rules-of-golf-review-placing-marker-in-front-of-golf-ball-legal-or-not

iihttps://www.foodnetwork.com/recipes/tyler-florence/chicken-and-dumplings-recipe2-2014345

iiihttps://www.travelandleisure.com/airlines-airports/united-baggage-fees

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