For wealthy Americans, the outcome of the 2016 election could be lucrative.
Democratic candidate Hillary Clinton proposed hiking their taxes. Donald Trump, her Republican rival and now the president-elect, proposed the opposite: $6.2 trillion in tax cuts over the next decade, according to the Tax Policy Center's analysis, with the top 1 percent by income getting almost half the benefit. That translates into a 13.5 percent boost to their after-tax income, compared to a 1.8 percent increase for taxpayers in the middle fifth of incomes.
No one knows if Trump can get such big tax cuts for the rich through Congress, even one controlled by the GOP. They could open the gap between the wealthy and everyone else still further, while ultimately widening the U.S. budget deficit and taking resources from other priorities such as health care and retirement.
But financial advisers to the wealthy are starting to bet that tax rates will fall as early as next year. And they're telling clients to make their move before the end of 2016 to maximize the payoff.
(Related: Trump's Plan Aims to Repeal Estate Tax, AMT)
Rich Americans generally have the most flexibility in taking advantage of these tactics. "You're really only talking to a small percentage of people who can really react to things like this," said Tim Steffen, director of financial planning at Baird. But middle-income taxpayers, including retirees, should also consider taking steps now that might save them extra money in the event of a tax cut.
The standard advice from tax planners is to lower your tax bill in any given year by pushing as much income as possible into future years and taking as many deductions as possible for the current year. Sell a stock that's done well in December, for example, and you'll owe taxes on those gains in four months, by the Internal Revenue Service deadline in mid-April. Wait until January, and taxes aren't due for more than a year.
It's the opposite for investments that have done poorly. Taxpayers can "harvest" losing stocks at the end of the year by selling them and then using those losses in April to lower their bill.
The strategy is all the more powerful if tax rates drop. Why finalize the sale of a business in 2016 when there's a chance you'll be able to keep more of the proceeds for yourself down the line?
"This is an exercise we normally go through," said Michael Kassab, chief investment officer at Calamos Wealth Management. "It takes on greater urgency this year."
That's especially true if any tax bill passed next year applies to 2017 rather than taking effect in 2018. There are precedents for this: A tax cut in 2001 and a tax increase in 1993 both took effect in the same year they were passed.
So consider these seven smart tax moves for rich and middle-income alike — and don't miss the last one.
1. Paychecks
Salaried employees generally can't tell their employers to wait until January to cut December's paychecks. But small-business owners, along with those who earn commissions, may have more flexibility. A consultant owed for work in 2016 might wait until January to bill her clients.
2. Retirement tax breaks
Salaried employees can make sure they're maximizing their contributions to their 401(k)s and other pre-tax retirement accounts in 2016. Even if this means they have less to save next year, the trade-off may be worth it. The tax break on a 401(k) or individual retirement account will be less valuable in future years if tax rates fall.
3. Retirement itself
