What Investors Should Know If Trump Cuts Capital Gains Taxes
By: Barry E. Haimo, Esq
October 8, 2020
As an investor, it’s always wise to keep an eye on Washington and make adjustments to your portfolio and annual tax planning accordingly.
Recently, President Trump stated in a press briefing that he is considering cutting capital gains taxes in an effort to stimulate the economy. This has the potential to significantly affect both your portfolio and annual tax planning.
Here’s what investors need to know should this come to fruition.
Trump Is “Seriously” Considering Cutting Capital Gains Taxes
In an August 10 press briefing, Trump said that a capital gains tax cut is on the table as a potential means to stimulate the US economy.
Trump stated that “We’re looking at also considering a capital gains tax cut, which will create a lot more jobs.” He also stated in the briefing that he is considering tax breaks for middle-class families.
Capital Gains Taxes As They Are Now
Capital gains taxes are paid on many different types of investments that are sold at a profit. Investors are required to pay capital gains taxes on stocks, bonds, cars, real estate (typically not a primary home), boats, and other tangible items of value.
Any profits made on these investments are considered capital gains. The tax rate investors pay depends on both the amount of time the investment has been held and the investor’s income bracket.
Assets that are held for less than one year prior to selling are subject to short-term capital gains tax rates, which are taxed as ordinary income, with rates ranging from 12-37% depending on your tax bracket.
Assets that are held for one year or longer are subject to long-term capital gains taxes. These rates range from 0% for households earning under $40,000 to 20% for households earning more than $441,450.
What a Capital Gains Tax Cut Would Mean
The potential effects of a capital gains tax are controversial. Supporters argue that this would stimulate economic growth and create jobs for middle-class Americans, many of whom are facing unemployment due to the COVID-19 pandemic.
Critics argue that a capital gains cut could trigger a major stock market sell-off as investors attempt to sell big winners to take advantage of a window that could prove to be temporary.
However, should the cuts be more permanent, investors are more likely to simply move investments around from one asset to another.
Keeping an Eye on the White House
Any election year has the potential to bring significant changes to the money market, depending on which party takes office. However, this year economic policy is especially polarized.
In contrast to President Trump’s proposed cuts, former Vice President Joe Biden plans to raise capital gains taxes to 39.6% for all households earning over $1 million in income annually.
This means that regardless of the results, the election is likely to significantly affect your investment portfolio and tax planning. In other words, you’ll need to act fast once the results are in to make sure your assets are protected.
Interested in learning more about capital gains taxes and how the upcoming changes could affect your tax planning? Get in touch.
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