with Andy Pulsfort
Each month, Andy’s answering a question that he wishes more clients would ask him, addressing timely topics that he thinks are worthy of the spotlight.
What do you think the future holds for tax rates and what should I do about it?
A lot of favorable tax laws are scheduled to sunset after 2025. What does this mean? Old rates will soon return and for many, those rates will be higher.
Meanwhile, as a nation, we’re racking up bills at record speed and have proposals on the table to keep spending. Those bills don’t disappear. Somehow, we have to pay for it all.
I anticipate the government will be forced to raise tax rates to meet future financial obligations.
But there are things you can do now to take advantage of the current, historically low tax rates:
Consider realizing additional income in lower tax brackets via Roth IRA conversions. By transferring funds from a 401(k) or traditional IRA into a tax-exempt Roth, you’ll be required to pay taxes on the income at the time of transfer, taking advantage of current lower rates, protecting the investment from future tax hikes.
Capital gains rates are also favorably low right now. If you’re looking to sell a business, investment property, appreciated stocks, or mutual funds, now may be a good time to act. Someday, 15-20% capital gains rates may look like a good deal!
Of course, a lot of this is about personal preference and your gut. And it also, always, depends on your personal financial circumstances. We might expect tax rates to go up, but there’s no guarantee. A bit of hedging bets makes sense, too.
Do you have questions about how this advice applies to your specific financial circumstances? We’re here for you. Just ask!