Local investment expert talks Presidential campaign, money

2:39 PM, Nov 2, 2012   |    comments
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Mitt Romney and Barack Obama photo by Getty Images

GOLDEN VALLY, Minn. - How will the election of President Barack Obama or Mitt Romney impact your pocketbook?

Jim Cahn, chief investment officer at Wealth Enhancement Group, joined KARE 11 News to discuss election implications on various tax issues, such as ordinary income tax rates, estate taxes and more.

Here is a quick look at what both candidates would do, according to Cahn:

Bush-era income tax cuts are set to expire in 2013. How will each candidate handle this?

The 10 percent bracket is eliminated and will become 15 percent. The 33 percent and 35 percent brackets become 36 percent and 39.6 percent respectively.

Election impact:

Ordinary Income Tax rates will likely go up on only the portion of AGI that exceeds $200K (Single/Head of Household) / $250K (Married Filing Jointly); top rates likely to be between 36 percent and 39.6 percent.

-Likely that all of the Bush-era tax cuts will stay in place for those with incomes of $200K (Single/Head of Household) and $250K (Married Filing Jointly) and below.

Romney has proposed across-the-board tax cut of 20 percent to marginal tax rates. Romney has also stated that he will be able to close tax preference items, such as charitable giving, to make up for the lower rate. Specifics are unknown, at this point.

Ryan McKeown suggests these planning considerations: People may want to consider a Roth IRA conversion, with the idea that in 2013 we can find out what tax rates will be and then choose to re-characterize all or a portion of that conversion before 10/15/2013 based on what makes the most sense at the time.

Tax issue: Estate Tax

Estate and gift tax exemptions are projected to be reduced to $1 million and the tax itself will increase to 55 percent. Portability rules will disappear. In addition, the Federal estate tax credit for state estate taxes returns, increasing the likelihood that states that have gotten rid of their estate taxes will reinstate them.

Election impact:

Reduce estate tax exemption to $3.5 million and increase estate/gift tax to 45 percent. Reduce lifetime gift tax exemption to $1 million. It would likely also make permanent the new portability rules that enable the surviving spouse to use the deceased spouse's unused exclusion amount. Obama has also proposed limiting the use of Grantor Retained Annuity Trusts (GRATs) to a minimum of ten years and would modify rules on valuation discounts, which would limit the value of FLPs and LLCs. Additionally, he would like to limit the use of dynasty trusts to 90 years (currently, some state laws allow such trusts to last in perpetuity).

Permanently repeal the estate and gift tax.

Planning considerations: People should consider legacy planning that will be flexible regardless of what the estate law becomes, making sure that at least disclaimer trusts remain in wills. If Obama wins and people have been planning to do some gifting, it is advisable do it this year while the exemption amount is still $5 million.

In addition, for Minnesota residents, WEG does not expect that Minnesota will make changes to its $1 million exemption regardless of what Federal action is taken. If estates for Minnesota residents are higher than $1 million, they may want to consider additional strategies for estate planning.

Information provided by Wealth Enhancement Group.



(Copyright 2012 by KARE. All Rights Reserved. This material may not be published, broadcast, rewritten or redistributed.)

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