WSJ Your Money Briefing - Moves to Make if You Think Taxes Will Rise Under Trump or Harris

Episode Date: November 5, 2024

Some Americans are making adjustments to their stock and retirement portfolios to hedge againstpotentially higher taxes under the new administration. Wall Street Journal personal finance reporter Ashlea Ebeling joins host J.R. Whalen to discuss moves recommended by financial advisers. Sign up for the WSJ's free Markets A.M. newsletter.  Learn more about your ad choices. Visit megaphone.fm/adchoices

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And now onto the show. And now onto the show. Here's your Money Briefing for Tuesday, November 5th. I'm JR Whalen for The Wall Street Journal. It's election day, and regardless of who wins, some investors are making tax-saving changes to their finances. As Congress is debating all these different individual tax provisions that are set to expire at the end of next year, whichever candidate it is for new tax cuts, they're going to have to get money somewhere.

We'll talk to Wall Street Journal personal finance reporter, Ashley Ebling, after the break. Balance your trading strategy by adding futures. CME Group helps you manage risk and capture opportunities in all market environments. Capitalize on around-the-clock access to highly liquid global futures and options markets across all major asset classes. Visit your online broker and get started. See what adding futures can do for you at cmegroup.com slash podcast.

Derivatives are not suitable for all investors and involve the risk of losing more than the amount originally deposited in any profit you might have made. This is not a recommendation or offer to buy, sell, or retain any specific investment or service. Some taxpayers are looking ahead to the next administration and making adjustments to their portfolio to hedge against higher taxes, no matter who was elected president. Wall Street Journal personal finance reporter, Ashley Ebling joins me.

Ashley, catch us up on where the candidates stand on taxes. First, former president Donald Trump. Trump's been saying he'd like to lower income taxes and raise tariffs. He also has a whole host of aspirational tax proposals saying he would want to remove taxes on social security benefits and remove taxes on TIP income for TIP workers. The big thing that's coming up is he wants to extend the tax overhaul that was passed in 2017, and that's the big individual tax overhaul that's set to expire next year. And how about Vice President Kamala Harris?

She, on the other hand, would raise taxes on the rich, proposing a new top capital gains rate of 28% for the highest earners. She'd also proposed increase the investment income surtax. That's a 3.8% tax on capital gains and dividends, interest and other income that kicks in at $200,000 of income for single taxpayers and $250,000 for married couples. So she says she supports the Biden administration budget proposals, which would include raising that tax to 5% at a $400,000 income level. Regarding the 2017 tax bill, which you mentioned a moment ago, which is up to Congress whether to extend, if lawmakers do nothing, which if there's a divided government, who knows what might happen, the tax brackets would revert back to the pre-2017 tax bill. And that means the tax rates would rise

across income brackets. And the top 37% rate, for example, would rise to 39.6% and kick in at a lower level of income. If people feel that taxes will rise in the next administration How do financial advisors suggest they could prepare for that? So some financial advisors I spoke with who Have wealthy clients say they've actually been starting to sell stocks to lock in that 20% Capital gains rate and even at lower levels that makes sense I'm some have been exercising stock options. And I even talked to a man who's been finishing up selling shares in his business.

You also spoke with a man from South Carolina who was confident whoever wins will have to raise taxes. Why does he feel that way? So like some people, they think like whether it's Trump or Harris, that it's just our national debt's kind of beyond comprehension is the way he put it. So eventually taxes are going to have to go up. And also there's the issue with the tax cuts when as Congress is debating all these different individual tax provisions that are set to expire at the end of next year, and they're looking at all these proposals,

whichever candidate it is, for new tax cuts, they're going to have to get money somewhere. And some experts say that changing the rates is one of the easy ways that they'll be able to reduce costs and get more tax revenue. What adjustments is the man you spoke to making to his finances? He's completing a series of Roth conversions. That's a classic example of a tax strategy where you accelerate income, something you do if you think tax rates are going up in the future. He's moved hundreds of thousand dollars from his traditional tax deferred account into

a Roth account where any future growth or withdrawals will be tax free. So you're paying the taxes today. And for him, it's the 24% marginal rate today, which goes up to this big bracket, up to $383,900 for a married couple this year. So he can pay that much at the 24% rate. And then it grows tax free. And then he figures otherwise otherwise if he just kept the money in the regular IRA he'd have to take it out at a higher rate.

The way he put it is I'm avoiding larger taxes in the future. And how are some Americans adjusting their estate planning in advance of the new administration? Most financial planners for the wealthy are saying the estate planning is even more important than the income tax planning if you're over 10 million or above a net worth. So these people are making big gifts, they're setting up trusts, by giving away assets now to their children outright or in trust, they can essentially lock in the current estate tax exemption, and that potentially saves millions of dollars at death. The estate tax exemption now is going to be nearly $14 million for 2025, so $13.99 million.

And then in 2026, again, if Congress doesn't change anything, it sunsets and goes back to $7.2 million. Let's talk about somebody's income. If they're in line for a bonus at work, what changes to the timeline of payments do financial professionals say they could consider? So in that case, again, if you're in the brackets where they are now and you have room in that bracket, you might consider accelerating 2025 bonus money into 2024. And then similarly, 2026 bonus money into 2025.

And then we'll see where things stand in 2026. What would accelerating those dollars accomplish? So that would mean that you're paying at this certain tax rate that you know what it is for the next two years, as opposed to waiting when it's possibly gonna be higher in the future. So you're sort of hedging against the unknown. There's this like huge caveat to that.

It's just so complicated with taxes, whether you're itemizing or whether the alternative minimum tax comes into play, whether the standard deduction will drop in half as expected in 2026. So there's so many factors and it's going to be an interesting year next year as Congress debates these issues. That's WSJ reporter Ashley Ebling. And that's it for your money briefing. We'll be back tomorrow with WSJ's Callum Borschers to discuss why the happy warrior

in your office could have the edge toward getting ahead. This episode was produced by Ariana Ospreay, with supervising producer Melanie Roy. I'm JR Whalen for The Wall Street Journal. Thanks for listening.