The Latest on New Tax Laws in 2021
Key Points – The Latest on New Tax Laws in 2021
- An Update on New Tax Law Legislation
- Creating a Financial Plan with a Tax Emphasis
- Looking Ahead to the Tax Cuts and Jobs Act Sunsetting in 2026
- Could New Tax Law Legislation Be Passed Retroactively?
- Another Hot Tax Planning Topic: Cryptocurrency
- You Need to Be Planning, Not Reacting
- 5 minutes to read
An Update on New Tax Law Legislation
There has been a lot of noise surrounding new tax laws in 2021. JoAnn Huber, CFP®, CPA + Tax Specialist has been all ears about the ever-changing proposals, but she encourages people not to fret. Should there be a tax rate increase before the end of the year, Huber says there isn’t much to worry about as long as you have a sound financial plan with a tax emphasis in place.
“We know that there’s going to be tax law changes at some point. We don’t know what, but you can’t wait because if everybody waits until Congress passes something, it’s not all going to get done,” Huber said. “For a lot of people, they’re not going to be impacted by it anyway. They need to just be taking the steps that they should be taking regardless.”
As Huber mentioned with Barber Financial Group CEO and Founder Dean Barber on Episode 52 of the Guided Retirement Show: Prepare for Tax Law Changes by Having a Tax Plan with JoAnn Huber, a tax plan can be easily adjusted whenever the tax code changes. Huber believes there will be a tax rate increase by year’s end, but there is still a lot of unknown with things changing day by day.
There Will Be a Tax Rate Increase by 2026
What Huber can say with certainty is that there will be a tax rate increase by January 1, 2026, when the Tax Cuts and Jobs Act sunsets. That further drives home the point of needing to look long term with your tax planning. Huber wants to remind people that even though they won’t likely be impacted by any potential new tax laws in 2021, everyone will be affected by the TCJA sunsetting.
“What do we need to be doing now? That’s what I’m trying to focus on,” Huber said. “You can ignore the noise out there right now. However, we do need to be focusing on your individual tax plan and figuring out what you need to do this year, the following year, and every year until there is a change.”
Could New Tax Law Legislation Be Passed Retroactively?
It goes without saying that it’s been very difficult for Congress to pass new tax laws, especially since the onset of the pandemic. Those challenges have led to more and more legislation being passed retroactively. So, could we see that happen with potential new tax laws in 2021 as well?
“When they’re passing things retroactively, it’s very hard. That’s what they did last year with unemployment income tax,” Huber said. “Tax law changes are happening. Everything is happening at end of the year this year as well, so you really don’t have time to react. For example, the Tax Cuts and Jobs Act was at the end of December 2017. There’s a lot of people saying, ‘Can they really pass something retroactively? If they pass a tax rate increase this year, can they go back to January 1, 2021.’ They can.”
More Questions Than Answers
While Huber and the rest of Barber Financial Group’s team don’t know what the tax law is going to be, that hasn’t stopped them from making sure they have all their numbers prepared.
- Will it be retroactive to that September 13 deadline or will Congress wait?
- Are we going to be subject to tax at 25% or 39.6%?
- Or is it going to be 20%?
Of course, it makes a difference, so Barber Financial Group’s advisors plan to get a hold of clients who are impacted to determine the best way to move forward.
“We have several clients that we have done preliminary plans for,” Huber said. “We’re just waiting for the trigger to get pulled. Depending on what gets passed, we have different plans in place. Not everybody needs to do that, though. We can make decisions now for most of the people we work with because we know what their plan is looking like. These changes don’t impact them. It’s just that handful that we’re looking at. We’ve got to be ready and since it might be something we need to act quickly on.”
Another Hot Tax Planning Topic: Cryptocurrency
When it comes to new tax laws, the clear-cut number one question Huber has received has been, “Do you think we will have a tax rate increase this year?” While she doesn’t have an immediate answer for that, there has been another hot topic that pertains to long-term tax planning that Barber Financial Group’s team has fielded several questions about. That’s cryptocurrency.
Huber’s main hope when it comes to new tax law change right now is that cryptocurrency becomes a covered security. While crypto doesn’t really fall into the realm of tax legislation, Huber wants people to be aware that they can’t just pretend like they don’t have it. The IRS will figure it out.
“There’s so much liability for not reporting the crypto,” Huber said. “That’s an area of focus. A lot of the tax legislation is trying to enforce compliance, which involves closing the tax gap. There’s a huge tax gap with the reporting of the cryptocurrency transactions. It’s not just the wash sales. If you have gains, you better be reporting it because if you think IRS doesn’t have information about it, they’re doing the John Doe summons. They’re going to get it.”
You Need to Be Planning, Not Reacting
While some people might not want to acknowledge their crypto on their taxes, there truly are a lot of cases where capital gains aren’t realized. With the strong performance of the stock market in the past couple of years, now is a good time to go through and check for any unexpected capital gains. Along with getting potential tax savings, it’s vitally important to consistently monitor if your portfolio is still in balance from an investment standpoint. Huber sees it as forward-looking financial planning with a tax emphasis.
“We’re talking about these changes this year, but what’s going to happen next year or the year after that?” Huber said. “We have a midterm election next year. What happens if there’s a swing in parties? Biden will still be in the White House, but what happens three years from now? Do we switch everything? It’s constantly going to be changing. You need to be planning, not reacting. It’s got to be proactive.”
As the discussion on new tax laws develops, don’t forget to reach out to us and schedule an appointment with one of our CERTIFIED FINANCIAL PLANNER™ Professionals. We can visit with you in person, by phone, or by virtual meeting.
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The views expressed represent the opinion of Barber Financial Group an SEC Registered Investment Advisor. Information provided is for illustrative purposes only and does not constitute investment, tax, or legal advice. Barber Financial Group does not accept any liability for the use of the information discussed. Consult with a qualified financial, legal, or tax professional prior to taking any action.