‘Taxmageddon’ deferral strategies that you might want to punt on
Installment payments from asset sales
Installment sales are designed to postpone the recognition of taxable gains until installment payments are received. Postponed gains will probably be taxed at the rates for the years they are recognized. So, if rates go up, installment sellers will likely see their strategy unwound with climbing tax rates.
Maxing out on deductible IRA and retirement plan contributions
Traditionally, savers use 401ks and IRA to defer taxes into the decades to come. So the tax savings we calculate for clients call them to use this vehicle to pay a lower rate in the future, if the rate in the future goes up, the value of this deferral to the saver is diminished. The taxable portion of IRAs and retirement plan distributions received in future years will be taxed at the rates in effect for those years.
Prepaying deductible expenses
Tax savings from current-year deductions from prepaying expenses are calculated using today’s rates. If you don’t prepay and tax rates go up, you come out ahead by claiming deductions in a later higher-rate year. This might also be a first, calling for deductions to be used in the years to come, to offset tax rates at a higher clip.