Significant tax cuts are expected under the incoming Trump administration and wealthy Americans are preparing to take advantage of these new economic policies. But with Trump’s inauguration fast approaching, how can the top 1% act quickly to position their finances for maximum benefit?
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Andrew Lokenauth, founder of TheFinanceNewsletter.com, says, “We’re looking at finding ourselves in an economic whirlwind within 24 hours of Trump’s presidency. Unless the top 1% act now, they could leave millions on the table.”
So, until Trump’s oath of office, here are the five crucial steps high net-worth individuals should take.
Maximize Tax-Advantaged Accounts
As Trump’s promise to write the Tax Cuts and Jobs Act, set to fundamentally restructure the fiscal landscape, approaches, the wealthy need to act fast to take advantage of current tax structures.
Lokenauth said we could see a Day One executive order laying out major tax overhauls.
“If current rules still apply, high earners should max out their 401(k)s, IRAs and consider Roth conversions.”
Many of these tax changes are reportedly scheduled to expire at the end of 2025 unless Congress extends them, according to the New York Times.
Trump’s previous corporate tax cuts boosted U.S. economic investment and gave workers a small pay bump, according to a study published by the NBER. This implies that similar tax policies could be run perhaps at the expense of both high-income people and companies.
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Reassess Investment Portfolios
Trump’s America first deregulation agenda promises winners and losers in sectors far beyond the union movement. Now, the top 1% investors might have to reallocate, with perhaps greater exposure to sectors that are likely beneficiaries of Trump’s policies. Banks and financial stocks have already tacked on huge gains on hopes for a lighter regulatory regime and more mergers, reports Bloomberg.
Investors should also think about the effect that Trump’s proposed tariffs could have on their portfolios. Trump has indicated that he is willing to slap tariffs between 10% and 20% on all imports and 60% and 100% on Chinese goods. Such tariffs could be game-changing for industries that rely on imported materials, putting both risk and opportunity in the hands of some top 1% investors.
Prepare for Potential Tax Changes
For wealthy people, now is the time to act decisively with the possibility of large changes in capital gains rates and estate tax rules. Lokenauth advises “to consider accelerating income into this year and shifting (business entities) into this year as economically as possible.
“Today, we may be closer to the end of the window that we have to use current tax brackets and deductions.”
According to the Washington Post, republicans are looking at restarting nearly $4 trillion in expiring tax cuts that disproportionately would help high-income earners. A recent U.S. Treasury analysis paints the financial consequences of extending Trump’s 2017 tax reform’s individual and estate tax provisions. It is very useful for high-net-worth individuals who are planning which kind of tax structure and approach might suit them.
Leverage Estate Planning Opportunities
The estate tax exemption will be enhanced and made permanent, which is a golden opportunity for wealth transfer. Trump’s previous earlier tax reforms massively increased such exemptions, eliminating federal taxation of most estates above and beyond their founders’ death duty-free transfers.
Given the potential for these exemptions to stretch or expand even further, wealthy individuals should also be encouraging their estate planning strategies to accelerate. Lokenauth suggests “The top 1% should consider setting up family limited partnerships and charitable remainder trusts immediately.” These should be put in place before new legislation is potentially in place that could save millions in taxes.”
Invest in Real Estate and Alternative Assets
Real estate, and even some alternative investments, may see unprecedented opportunities in Trump’s focus on deregulation and economic growth, reports CNBC. He has said he wants to encourage as many new homes as possible to address housing affordability and could open the door to new investment.
Lokenauth says, “Look at Opportunity Zones and think about increasing the allocation to private equity. In the new economic climate, these investments could provide a big tax advantage and growth potential.”
By mid-2023, the nation would be short 4 million homes, the National Association of Realtors reported. The housing deficit exacerbated by Trump’s plan to enhance construction would constitute huge opportunities for real estate investors.
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This article originally appeared on GOBankingRates.com: The Trump Economy Begins: 5 Money Moves the Top 1% Should Make Before Inauguration Day
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