Year-end 2019 is almost here. Are you making the most of currently favorable tax rates before they change or expire? Many of the non-corporate tax provisions in the 2017 Tax Cuts and Jobs Act will evaporate at the end of 2025 if not renewed by Congress. If there is a new administration in Washington come 2021, tax law changes could happen even sooner. Below are the types of households that stand to benefit the most from tax strategies that take advantage of current tax rates.
#1. Lots of unrealized gains. It could be stocks or stock options, real estate, or even collectibles. The profit on asset sales is currently taxed as a long-term capital gain at the favorable rates shown below (if held for at least a year). These favorable rates also apply to qualified dividend income.
Worth exploring: Using a variety of strategies to diversify your income stream and take advantage of the current long-term capital gains rates. This is especially important for those about to retire or already in retirement.
Long-Term Capital Gains Rates (2019)
|Single||Married, Filing Jointly|
|Taxable Income||Gains Tax Rate||Taxable Income||Gains Tax Rate|
|$0 to $39,375||0%||0 to $78,750||0%|
|$39,376 to $434,550||15%||78,751 to 488,850||15%|
|Over $434,550||20%||Over $488,850||20%|
People with income over $200,000 (unmarried) or $250,000 (married filing jointly) also pay a 3.8% surtax on net investment income.*
#2. Own a non-corporate business. If you personally pay the tax on your business’ income — you are a sole proprietor, a partnership, Limited Liability Co. (LLC) or an S corporation — you may qualify for a deduction that is up to 20% of the business income (through 2025, when this provision expires if not renewed).
Worth exploring: Finding out if your businesses or other investments can benefit from the 20% Section 199A deduction. This is one of the most complicated aspects of the 2017 tax law, and it applies to income generated not just by certain businesses but also income generated by real estate LLCs and trusts.
#3. Net worth higher than $5.7 million. It is a very good idea now to review your estate planning options, including the creation of a lifetime trust. Why? Because between now and the end of 2025 (when this provision is due to expire), the amount you can give away tax-free during your lifetime – or at death — has doubled: to $11.4 million per individual for tax year 2019 ($22.8 million for a married couple). Certain states, including Washington, levy their own estate taxes, and those remain the same.
Worth exploring: Making the most of lifetime gifts and asset transfers – outright or to a trust — to lock in beneficial federal gift and estate tax exemptions, while also minimizing Washington State estate taxes?
WA State Estate Tax Rates
Applied to Estate Value Above the 2019 Exemption of $2.193 Million Per Individual
(Not Portable to Spouse)
|WA Estate Value Above $2.193 Million||Marginal Rate|
|$0 to $1 million||10%|
|$1 million to $2 million||14%|
|$2 million to $3 million||15%|
|$3 million to $4 mil||16%|
|$4 million to $6 million||18%|
|$6 million to $7 million||19%|
|$7 million to $9 million||19.5%|
|Over $9 million||20%|
As always, the devil’s in the details and each tax situation is unique. As both a trust company and a registered investment advisor, Laird Norton Wealth Management is uniquely equipped to help you and your family make the most of your assets so you can attain your life goals.