September 27, 2024 - C2P Enterprises

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September 27, 2024

Kamala Harris’ Tax Proposal Explained for Financial Advisors: The Impact on High-Net-Worth Clients

September 27, 2024

As we gear up for the 2024 presidential election, it’s important to consider about how some of the candidates’ proposals will inevitably affect your financial advisory clients, and therefore how you advise them in their best interest.

Looking at Vice President Kamala Harris’s tax proposal, for example, we see significant changes that would occur, particularly for high-net-worth individuals and families.

These potential tax policy updates may take a bite out of your clients’ assets, so it’s best to start immediately protecting their financial futures through proactive planning and education. Here’s what you and your clients need to know:

Income Tax Increases: What High-Earners Should Expect

Kamala Harris proposes allowing the Tax Cuts and Jobs Act (TCJA) to expire in 2025, which means tax hikes for almost all income levels.

Notably, for those earning over $400,000, Harris supports bringing back the top 39.6% income tax rate. If your clients fall within this income range, now is the time to discuss tax-efficient investment strategies. Additionally, child tax credits will be expanded, including a one-time $6,000 credit for the first year of a child’s life.¹

These changes could impact your financial planning strategies, especially for clients seeking to maximize tax deductions for their families.

Capital Gains Tax Hike: Key Considerations

If implemented, Harris’ plan would increase the capital gains tax rate to 28% for households making more than $1 million annually. When combined with her proposed 5% net investment income tax (NIIT), the total rate for high earners would be 33%.^2,3

It’s worth noting that if implemented, this would be the highest capital gains tax rate since 1978.³

To help clients this would apply to reduce their capital gains exposure and manage their investment portfolios, consider working with them to implement tax-loss harvesting and long-term holding strategies.

Estate Tax: Significant Changes on the Horizon

One of the most significant changes that may occur involves lowering the estate tax exemption from the current $13.61 million to $3.5 million per individual, or $7 million for married couples. This change, coupled with higher estate tax rates (up to 65%), means your clients with sizable estates need urgent attention.⁴

Business Tax Strategy: Corporate Rate Increases

Be ready to adjust strategies for your clients with significant business interests.

Harris wants to raise the current 21% corporate tax rate to 28%. She also proposes increasing the 15% alternative minimum tax on very large corporations to 21%. ⁵

Real Estate Tax Strategy: Limiting 1031 Exchanges

Kamala Harris’s proposal places a $500,000 cap on like-kind exchanges (also known as 1031 exchanges), a common tax deferral strategy used in real estate.⁷

Be prepared to adjust long-term real estate investment strategies for clients who rely on these deferrals.

Wealth Tax and Financial Transaction Tax

The proposal also introduces a 25% minimum income tax on individuals with at least $100 million in wealth. Additionally, Harris proposes quadrupling the existing 1% excise tax on stock buybacks by publicly held corporations to 4%.⁵

Financial transaction tax on stock and bond trades could erode some investment performance, especially for active traders.

To minimize the impact of taxes if Harris is elected and this legislation is enacted, consider reviewing your clients’ portfolios for long-term investment strategies that can help insulate against the ups and downs of political cycles.

Preparing Your Clients for Potential Tax Changes

As we’ve explored, Kamala Harris’s tax proposals could significantly impact high-net-worth individuals and families. While these changes are not yet law and would require congressional approval, it’s crucial to start preparing your clients for potential shifts in the tax landscape.

How to Start the Conversation

See how Dave Alison, CFP®, EA, BPC, founder and CEO of Alison Wealth Management, positions these potential tax changes to his high-net-worth clients with an informational video he created:

Consider sharing content like this with your clients or creating your own version to powerfully demonstrate your thought leadership.

By staying informed and proactive, you can help your clients navigate these potential changes and protect their financial futures.

Standing Out by Staying Informed

Want to learn more about navigating potential tax changes and enhancing your client services? Book a call with our team at C2P to explore how we can help you stay ahead of the curve and provide exceptional value to your high-net-worth clients.

Subscribe to our podcasts for regular updates on tax proposals, financial planning strategies, and industry insights to keep your practice at the forefront of wealth management.

Our podcasts include The Bucket Plan®, The Rainmaker Multiplier, or A Woman’s Clarity®.

For Financial Professional Use Only

The information provided in this presentation is not intended as investment advice or legal advice. The information provided is for informational and training purposes only. The information in this presentation was accurate as of the time the material was created. Tax laws and rulings can frequently change. Please discuss the client’s current situation with an accountant or tax advisor.

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