The President wants to raise taxes and Congress may be inclined to pass a bill that makes it so. As your personal financial planners, we get asked frequently – is it better to pay taxes now or later? – we will have to help you make decisions before we know the results. Here are some tips to keep in mind.
Long-Term Capital Gains
What can you do about it? You have several options: Consider paying taxes this year instead of waiting until next year. Sell some of your winners and realize those taxes. Set aside some of your earnings, if you have to, and plan on paying the taxes in April, 2022. Talk with your advisor and see if this is a prudent decision. Learn how you can see your current unrealized gains on the website at any time.
Use the A&I Website to See Your Gains
You can view your long-term and short-term capital gains on our website. If you would like help, please call the office. Your advisor will be happy to help you find it. Using the “Liberty” website, you can see unrealized gains, both long and short. You can see when the short-term gains will become long-term gains. You can see all of your realized gains–for which you will owe taxes. You can then plan and prepare for any tax problems you may have.
Short-Term Capital Gains
What can you do about it? If you have income that is taxed at short-term rates, then you may want to realize these gains this year not next year. In some ways, eliminating the benefit for long-term taxable investments simplifies the investment decision. If the tax increase does go through, the investment decision is purely an investment decision without the tax confusion. On the other hand, for years, many people have argued that it is better for society to encourage long-term investment behavior. A tax increase would discourage that thinking, or at least eliminate the tax incentive for long-term investing.
Are Income Taxes Increasing?
What can you do about it? Consider a Roth Conversion and bring forward that income that you would otherwise defer until later. Consider IRA withdrawals as appropriate for expenses that you may have otherwise deferred. Consider selling property, a business or other income-taxable decisions that you otherwise might be able to push off until the future.