Election results: What they may mean for your tax planning and investments

With every new presidential administration comes some economic uncertainty. You may be wondering how the 2024 presidential election results may impact your tax and investment planning.

“I would offer my clients the same guidance, regardless of their net worth or who is in office,” says Nikki McCain, senior fiduciary strategist with Wells Fargo Wealth & Investment Management, Wells Fargo Bank, N.A. “Be proactive and stay the course when it comes to tax planning.”

Paul Christopher, head of global investment strategy for Wells Fargo Investment Institute, adds that focusing on the big picture is also important. “We expect a solid economy next year, despite some policy uncertainties,” he says. “Our analysts see a net-positive outcome.”

Both specialists agree that there are specific areas to watch when it comes to considering the impact of the election results on your tax and investment planning.

Tax changes remain a question mark

The Tax Cuts and Jobs Act (TCJA) of 2017 remains the wild card. Many of the provisions of the TCJA, which overhauled the tax code and reduced taxes for individuals and businesses, are set to expire at the end of 2025 unless lawmakers vote to extend them.

“Given that the president-elect signed the TCJA into law during his first term, we believe that, at a minimum, he will wish to extend the law,” McCain says.

TCJA benefits: McCain notes that the provisions in the TCJA have been positive for many individuals and businesses. “A lot of my clients saw lower overall tax rates,” she says. “And the higher gift and estate tax thresholds have also opened up some interesting estate planning techniques, such as a spousal lifetime access trust (SLAT), for some of my ultra-high-net-worth clients who want to transfer wealth in a more tax-efficient way.”

What individuals should consider: “Given that we don’t know for sure what will happen with the TCJA based on election results alone, we’d suggest our clients continue with their current tax planning,” says McCain. She offers four strategies that can help insulate taxpayers against potential tax code changes in 2025.

• Take advantage of the 2025 federal estate tax exemption of $13.99 million ($27.98 million for married couples) by exploring tax and estate planning strategies like a SLAT, which removes assets from the estate but allows a spouse or future generations to access those assets as needed. By selecting a trustee located in a favorable trust jurisdiction (such as Delaware), the tax benefits of the gift may be able to be extended in perpetuity.
• Consider making monetary gifts in 2025 while the annual federal gift tax exclusion stands at $19,000 per recipient.
• Consult with your financial and legal teams about future personal and business plans that could impact your income taxes, especially if the TCJA sunsets.
• Look into strategies that could maximize the current qualified business interest deduction, such as business restructuring. Some business owners may consider accelerating income to reap the benefits of the Section 199A deduction in 2025.

Investment opportunities could expand

The economy is expected to remain strong well into 2025, even as some areas, such as bond prices, experience some volatility. Economists expect to see broad deregulation across sectors, which could benefit all equity classes, and overall market acceleration and growth.

Expect policy and economic momentum to grow over the year: Christopher agrees with McCain that the election results probably pique lawmakers’ interest in extending the expiring TCJA provisions but adds, “Policy change impacts are most likely to accumulate over 2025, and the economy should gain momentum. We expect falling short-term interest rates and increased credit availability to gradually fuel new household and business spending that drives earnings growth and equity returns.”

Tariffs and immigration policy could increase consumer prices: New tariffs and immigration limits may make headwinds for investment returns, as both policies could build price increases and reduce spending — and economic growth — into year-end. But Christopher notes, “Even with the potential negatives of new tariffs and immigration restrictions, we expect deregulation efforts, tax cut extensions, and economic growth to create an overall positive economic backdrop in 2025.”

These are the top five actions Christopher recommends for investors to consider:

• As short-term interest rates fall, reallocate out of cash and short-term instruments into equities and longer-maturity fixed income.
• Help manage market volatility by taking an incremental approach to rebalancing your portfolio. Dollar cost averaging can help capture higher long-term yields and protect against sudden market shifts.
• Boost cash reserves to the level suggested by your financial advisor in order to help protect against short- or long-term market slumps.
• For qualified investors, look into private capital and private debt opportunities, both of which are becoming more attractive to companies in need of funding.
• Invest more in commodities, which could decrease your overall exposure if bonds and stocks dip at the same time.

There is no crystal ball that can help you see the full impact of the 2024 election results, but proactive investors can navigate the coming year with confidence. “The evergreen guidance for investment planning is to meet with your financial advisor often,” Christopher says, “and consider rebalancing your portfolio on a regular basis as your financial goals and the market change.”