Tax season ended this year on Monday, May 17, marking the second year in a row where the deadline was extended. Our office, as well as our CPA affiliates, found themselves working until the last possible moment. An unwritten rule says the longer you give yourself to complete a project, the longer it will take to accomplish the task.
This year, and last year, proved that observation to be accurate.
The IRS and Congress have been busy bees the last few years. The response to excess corporate taxation led to the Tax Cut and Jobs Act beginning in 2018. The SECURE Act became law in January 2020. The CARES Act was the response to COVID in March 2020. Our leaders seem to believe it takes a village of regulations to shepherd our economy and our citizens.
The Tax Cuts and Jobs Act (TCJA) of 2017 was the most significant change to our tax code since the Tax Reform Act of 1986. The Act is responsible for raising the standard deduction, capping the State and Local Income Tax (SALT) deduction at $10,000, lowering marginal tax brackets, raising the estate tax exemption to $11.2 million for individuals and $22.4 million for married couples, and repealing personal and dependent exemptions.
The Setting Every Community Up for Retirement Enhancement (SECURE) Act became law in January 2020. The Act eliminates the “Stretch” IRA for non-spouse beneficiaries and raises the Required Minimum Distribution (RMD) age to 72. The changes are not limited to these issues. The SECURE Act was comprehensive and confusing.
The COVID-19 pandemic demanded a response of some nature, and Congress and the IRS complied by passing the Coronavirus Aid, Relief, and Economic Security (CARES) Act. This bill came with various temporary measures to help alleviate the burden of the economic downturn that resulted from the shutdown of virtually every corner of our economy. The focus was to protect both individuals and businesses from the shutdown of our national and global economy. The response was swift. The repercussions are yet to be fully understood.
New to the “village” of shepherding attempts is the American Rescue Plan of 2021. This bill included another round of stimulus for qualified individuals, a boost to the child tax credit, an increase to the childcare tax credit, an extension on federal unemployment benefits, and many other temporary financial boosts to help people who were still dealing with the impact of COVID-19.
Each of the laws merits an individual discussion and conversation. Collectively, the “village” of regulations will have unknown consequences for the American economy. We will never know what would have happened had our leaders not responded. “Monday morning quarterbacks” will be discussing what should have occurred regardless of the outcome.
Our job is to manage what is, not what we believe should be. A friendly suggestion would be to aim your financial decisions based on the most probable direction of our economy, regardless of your opinion. That is what we are doing as professional wealth managers.
Joseph “Big Joe” Clark, whose column is published Saturdays, is a certified financial planner. He can be reached at firstname.lastname@example.org or 765-640-1524.