As we head into the final week of the 2020 Presidential campaign it is important to examine how a Joe Biden victory could potentially impact your taxes in 2021 and beyond. Biden’s proposed strategy is to focus on the highest earners and particularly those that make over $400,000. The country’s finances are in dire straits and whichever party wins will need to implement changes quickly to raise revenue. At this time, President Trump has not released any new plans to adjust the tax code. As expected, neither candidate spoke at length about taxes during the debates since no one wins by discussing tax increases!

It is very important to remember who controls the Senate will have a large bearing on whether Biden or Trump can fully implement their plans. Below is a preliminary look at Biden’s proposals.

Top Marginal Tax Rate – return to the top marginal rate of 39.6% on ordinary income above $400,000. Currently, the top marginal rate is 37% on taxable income above $622,050 for joint filers and $518,400 for single filers.

1. 1. Capital Gains and Dividends Taxes – any profits above $1 million regardless of total income would pay 39.6%. As it stands now, joint filers with income below $80,000 pay no capital gains tax. Those with income between $80,000 and $496,600 pay 15%. The tax is 20% on income above $496,000.
   2. Social Security Tax on Income above $400,000 – calls for 12.4% tax split 50/50 between employee and employer. Currently, Social Security taxes are only on the first $137,700 of wage income. Self-employed people would pay the full 12.4% over $400,000.
   3. Cap on Itemized Deductions – Biden proposes a cap on amount of deductions (charity, mortgage interest, etc.) for those making over $400,000 to 28%.
   4. Phase-out the Qualified Business Income Tax Deduction – perhaps one of the most complicated aspects of Trump 2018 tax cuts, the QBI deduction allows owners of pass-through entities (self-employed, LLCs, S Corporations) to potentially deduct 20% of qualified income if several factors are met including what type of business. Biden would eliminate the deduction for those making over $400,000.
   5. Estate Tax Exemption Reduction – the current law increased the per person exemption to $11.58 million per person for 2020. Biden’s plan would reduce the per person exemption back to the 2017 level of $5.49 million per person.
   6. Loss of Step-up in Cost Basis – perhaps the most controversial of Biden’s proposal, this would eliminate the step-up in cost basis for inherited assets. Under current laws, appreciation on investments, businesses, real estate, etc. gets a step-up in basis when the owner dies so the heirs inherit the asset at current market value and would owe zero capital gains tax if sold immediately.
   7. Reinstate Home Buyers Credit – similar to law passed in 2008, this would provide a tax credit of up to $15,000 for first-time home buyers.
   8. Expand Child and Dependent Care Credit – minimal details provided so far but this would increase the tax credit for joint filers who both work to cover childcare and school expenses.
   9. Corporate Tax Increase – increase rate from 21% to 28% and enact a 15% minimum “book tax” on corporations with income above $100 million. Both Biden and Trump want to make sure companies are avoiding paying taxes in the United States

It is always interesting (or perhaps scary) to hear proposals.  It is important to note that plans evolve and the pandemic has greatly altered the norm. Tax policy is not entirely up to the president so all components will be negotiated whether one party holds the majority or not. Regardless of the outcome, I highly recommend speaking to your tax advisor if you have concerns!

Open Enrollment, which varies by company but generally takes place in the Fall, can often be a stressful time as trying to make sense of your company’s benefits can seem like a daunting task. It is an important time however, as it allows you the opportunity to adjust your benefits based on any changes that have taken place or might take place over the coming year. Many employers may make slight changes to their plans and it is important that you review them to ensure you are taking advantage of all your options and getting the coverage you need. On occasion, some employers may even require action on your part in order to stay enrolled. It is important to carefully review the documents provided to you so you can be sure to make the necessary adjustments to options that best fit your needs and keep your coverages current. Open enrollment is also a great time to review the amount of money you are contributing to retirement and seeing if you can increase it as well as review beneficiaries to make sure they are up to date on life insurance or 401k plans.

A few important things to consider:

What Changes Have Taken Place to The Plans Offered?

It is important to look at not just the difference in premiums for the plans, but also the more detailed changes such as coinsurance and copayment amounts. You should also check to see if there is a different deductible amount. These offerings can vary depending on the size of your employer and you may have several different options to choose from. Depending on your situation a plan with a higher deductible may make sense for you however, if you are planning on having a child within the next year, a more traditional plan with a lower deductible may make more sense. You will want to weigh the out-of-pocket expense to you for each plan and consider the likelihood that you will reach those maximums. There may also have been a change in providers which could mean your regular doctor or dentist is no longer in network under the new insurance. You will want to check before going to a doctor to ensure coverages, be aware if pre-approvals are needed, and to avoid out-of-network costs. Lastly, you will want to review life insurance and disability insurance coverages. There may be low cost options available to you for life insurance as well as disability and if you have others depending on you it might be wise to take advantage of these offerings.

Have My Needs Changed This Year or Will They Change Over the Next Year?

It is easier to make changes and sign up during open enrollment. For example, perhaps dental insurance did not make sense when you were single but it may make more sense once you have children. Additionally, you may need to start using that Flexible Spending Account for daycare or health costs or utilize Dependent Care Flex Spending if it’s offered. Contributions to both are tax-free as well as withdrawals made for qualified expenses. You will need to tell your employer how much to take out from your gross pay for the year. You will also need to use this money within the year as it does not roll over like an HSA. With an HSA, which is typically offered with a high deductible health insurance policy, the money is tax deductible, earnings are tax-free, and withdrawals used for qualified medical expenses are also tax-free. The other benefit of an HSA is it’s a portable account, meaning if you change jobs, the money will go with you.

How Will Things Affect My Take-Home Pay?

For existing employees, this is the time to ensure you are taking full advantage of any 401k plan your company offers. Many employers offer a company match (up to a certain percentage) that is free-money you should not leave on the table. You should consider how this will affect your take home pay when deciding how much you can contribute. Insurance premiums, contributions to HSA’s and 401k’s should all be factored into your budget so you are sure your money is going to work for you in the best possible way. It is important to remember that many of the benefits will come out before your taxes as this lowers your taxable income and may make it so that you do not notice the changes as much.

Final Thoughts

There may be other options offered during open enrollment as well. For instance, they may offer a legal plan to assist in your preparation of estate documents. When it comes to additional coverages though, be sure to read the fine print and don’t be fooled by marketing language. Make sure to review the coverages and cost in detail to be sure there is real value to you. Fully understanding the benefits is key to ensure you are making informed decisions and fully taking advantage of the benefits your employer provides. Is your open enrollment period approaching? As always, Lighthouse Financial Advisors, Inc. is here for you and ready to assist you navigate through the process.

One of the most common sources of conflict in relationships is money. If you are lucky enough to have found someone who you are compatible with, the last thing you want to do is jeopardize the life you are trying to build together because conversations around money are getting in the way.  Discussions about finances between partners often become emotionally charged, especially when it involves different values around money.  Fortunately, whether it’s about spending habits, saving for a desired goal, investing or paying off debt, having healthy discussions about finances is a skill that couples can learn to develop together.

Understanding what drives your partner’s emotions about money is key to turning these discussions into honest and productive conversations.  It can be helpful to discuss together what your experiences were like with money growing up.  In some households, speaking about money can be considered taboo while in others they are open discussions. These early experiences shape the way we view money and inform our decisions as adults on how we choose to spend, or not spend. Understanding that your partner grew up with a financially irresponsible parent due to a gambling problem can go far when trying to understand why your surprise purchase of an expensive custom suit quickly became a serious issue. On the flip side, your partner’s understanding that your purchase of a custom suit was because you felt you could finally afford it and deserve it seems less frivolous when it’s known that you grew up with years of being bullied as a child for your second-hand clothing.

The benefit to understanding your partner’s emotional connection to money is that it can open the door for truly honest conversations.  If you both come from a place of understanding you create a safe space to share information, even if it means sharing things you may not be proud of.  Hiding debt or overspending is a deception that can have serious adverse effects on a relationship.  Like lying, it can wear away at the trust that exists between you and could be your downfall.  It’s imperative to have an honest conversation about any debt or unhealthy spending habits.  If you can agree to a plan to pay off the debt or plan a budget that includes a set amount of savings these issues can easily be figured out before they become your undoing.

Starting and regularly having these money discussions can be difficult but money is a part of life – and maintaining openness around it with your partner is key to prevent it from becoming an issue.  Like most aspects of a relationship, communication is everything.  Sharing priorities and agreeing on common goals together will allow you to more easily create a path forward. Focus on each other’s strengths, always keep each other in the loop and your money conversations can become a part of your relationship that serve to reinforce your shared visions and dreams and further strengthen your partnership.

For the past 20 years Lighthouse Financial Advisors has been committed to reducing stress and keeping couples happy by coaching them through financial matters.

When you know what you want in life and you strive to reach it, you can accomplish almost anything.  It’s easy to dream big and create goals, but how do you go about accomplishing those goals?  Below are a few steps to follow to keep you on your path:

1. Write down all of your goals – seeing them written down on paper helps to solidify them in your mind.
2. Prioritize – Now that you have written them all down. Decide which goals are most important and what you want to accomplish first.  Trying to focus on all your goals at once often leads to being overwhelmed, stressed, and disorganized, making it much harder to accomplish any of your goals.  Focusing on your top 1,2, or possibly 3 goals creates a better chance of success and enables you to then focus on your next set of goals.
3. Clearly define your top goals and create a timeline – This allows you to focus in on exactly what you want to accomplish and how long you expect it to take. Be sure to consider outside pressures and set realistic, attainable expectations.  Having appropriate expectations creates manageable action items, reduces stress, and increases your chances of success.
4. Break down large goals into smaller goals – Very large goals can create stress and lead to you to feel overwhelmed making it hard to focus on what needs to be done to accomplish them. Breaking large goals into multiple smaller goals enables you to create manageable action items, which will enable you to stay positive, and hopefully stress free.  Accomplishing multiple goals also creates consistent success which in turn encourages you to keep going on your path.
5. Create a plan and track your Progress – Creating action items helps you to plan ahead to ensure you have the materials and time you need. Tracking your progress keeps your mindset positive and encourages you to continue on your path. This can be done several ways depending on the goal.  Sometimes the progress is evident just by looking.  For example, repainting a room, you can see the difference when you cut in, apply the 1^st coat of paint, and the second.  Other goals can be measured and tracked numerically such as increasing your savings account to a specific amount.  You can track your progress by watching the balance increase.  Other goals are harder to see such until completed such as obtaining a degree.  One way to track your progress would be to create a master checklist of all the classes you need to take and mark them off as you complete them.  Whatever method you choose make sure it is one that will help you stay motived.
6. Tell a friend – Having someone to hold you accountable when you slack off on your goal and encourage you when you are struggling makes it easier, and hopefully more fun to stay on task and keep you motivated.

No matter how much you plan you will always run into obstacles.  Sometimes the obstacle is yourself and you lose focus, get discouraged, and cease to make progress.  Other times the obstacle is an unexpected event out of your control, such as a car crash, illness, unplanned child, loss of job, a promotion at work with additional expectations or even a required relocation.  Regardless of what causes you to derail your progress it is important to find a way to get back on track.  Here are a few suggestions to get you back on the path to your success:

1. Acknowledge mistakes – Everyone makes mistakes from time to time. It is important to recognize what you have done wrong so you can hopefully avoid it again in the future.
2. Forgive yourself – Don’t harp on the mistakes you have made. Focus on moving forward and remaining positive.  A “you can do it” attitude goes a long way when trying to accomplish a goal.
3. Identify roadblocks – Knowing what your difficulties are enables you to manage the impact they make or even makes it possible for you to avoid it in the future.
4. New action plan – Sometimes you get so far off course that some of the steps or timeline expectations need to be changed. Other times the obstacles that occur force you to reevaluate your priorities and change your goals.  Do not resist altering your goals if they are no longer what you want.  Life is everchanging so it is important that your goals change to fit your wants and needs.

While the COVID-19 pandemic continues to be challenging to say the least, it presents an opportunity for communities to come together and for us to give back.  Charitable giving is meaningful for a multitude of well documented reasons. In addition to helping those in need or just brightening someone’s day, the simple, selfless act of helping others provides a great sense of personal satisfaction and growth.

While writing a check is undoubtedly helpful, small acts of service can really add up and go a long way.  Here are a few meaningful ways to pay it forward and give back to your community today:

1. Cheer Up Those Around You. Give an old friend a call, check in on your neighbor, or simply make eye contact and give a wave the next time you’re on a walk or in the store. A smile or kind social interaction can go a long way!
2. Donate your time. Seek out local institutions looking for volunteers or donations.  If you’d rather not go out in public, offer your services or skill set. Do you know of a friend out of work? Offer to proofread their resume, make an introduction, or practice a mock-interview with them.
3. Support Local Business. Local businesses have been hit hard during this period of social-distancing with Americans out and about less. Consider picking up a bag of coffee beans from a local coffee roaster (Rook Coffee is my personal favorite!), or simply supporting your favorite local restaurants. All of these establishments play a part in making your community a place you call home, supporting them helps keep them going.
4. Tip a little Extra. Now that we’re heading back to the salons, barbershops, and beginning to dine out, consider tipping more generously. It is no surprise that these industries have been deeply affected by the economic impact of COVID-19, so as we begin to support these establishments, keep the local workers in mind. With the reduction in hours and a reduced customer base, a little bit of an extra tip, if you’re able to, can make a huge difference.
5. Do Your Research & Donate Money If you’re able to give monetarily, do the research to ensure your money is being effectively used by the charity. Donate locally, and if you’re donating to a larger institution be sure to vet them in advance. There are charity assessment tools which rate organizations based on financial transparency and how much goes toward the cause versus marketing, fundraising or administrative costs. Also, it doesn’t hurt that monetary donations have tax advantages too!

While social distancing can make us feel insular, a sense of community has never been more important. Consider some of these tips to help us all get through this challenging time, together