What the Midterm Elections Mean for Your Finances
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Here's your Money Briefing for Friday, November 18th. I'm J.R. Whelan for The Wall Street Journal. Republicans taking control of the House of Representatives and Democrats holding onto the Senate means divided government for at least the next two years. And that could be good for your wallet.
I spoke to a certified financial planner in Michigan who noted that it really could mean a few thousand dollars a year in one's pocket.
On today's show, we'll talk with our personal finance reporter, Ashley Ebeling, about what you can do now to make the most of division in Washington before the next elections. That's after the break.
The midterm elections resulted in divided government, with Democrats in control of the Senate and Republicans heading up the House. So what does that mean for your money? Wall Street Journal personal finance reporter Ashleya Ebling has been talking to financial professionals about that, and she joins me now. Ashleya, thank you for being with us.
Nice to be here.
So, Ashleya, what would a divided Congress mean for how people plan out their personal finances?
Well, a divided Congress is unlikely to pass major tax legislation. So the big piece of legislation, the Trump-era tax overhaul from 2017, that's still in place through 2025. And now with this divided Congress, it's unlikely there'd be any major changes to that legislation. So that means individuals can plan strategies that work over the next few years instead of just taking a one-year view, you can plan for the long term.
Okay, so that leaves us roughly three years before any major legislation that could affect personal finances would be passed. Why is that significant?
I spoke to a certified financial planner in Michigan who noted that it really could mean a few thousand dollars a year in one's pocket. So he said when taxpayers plan just one year at a time, they might save in the short term but end up paying more later. For example, one new client, a retiree, had taken large medical expense deductions and paid zero in federal income tax for 2020. Was that great planning, he said? No, because he missed out on opportunities for greater tax savings.
All right, let's get a little bit more specific. How can people use this knowledge in their financial planning?
That 2017 tax law included raising the standard deduction. So one strategy that planners talk about is with that expanded standard deduction set to remain in place through 2025, it can pay a bunch deductions into one year and itemize and then use the standard deduction the following year.
What do you mean by bunch year deductions?
So that would mean for someone who makes a lot of donations to charity, the charitable deductions count as itemized deductions. They could make those charitable deductions all in one year. One tax planner I talked to had a married couple in the 24% tax bracket who typically give $15,000 to charity. They would save almost $3,400 in taxes by lumping together two-year gifts into one year and then taking the standard deduction the following year.
Wow, that can really pay off.
Exactly. One thing to watch out for in the lame duck session, Congress may reinstate an extra charitable deduction for this year, for 2022, for non-itemizers, folks who don't take the standard deduction. And that would give people the opportunity, single filers could deduct $300 or married couples up to $600 in charitable deductions on top of taking the standard deduction. But that's assuming that there's bipartisan legislation in the next couple months in the lame duck session.
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