Potential New Tax Rates

nvr2mny · nvr2mny's Garage

Please excuse me if this is being discussed. If it isn’t, why? Sure seems to be quiet on the news cycles.

From Forbes;

EDITORS' PICK|Sep 3, 2021,03:22pm EDT
Capital Gains Tax Hike And More May Come Just After Labor Day
Ashlea Ebeling

New taxes on the rich in the $3.5 trillion budget plan would help pay for ambitious social policy programs.
New taxes on the rich in the $3.5 trillion budget plan would help pay for ambitious social policy ... [+] GETTY
The House Ways and Means Committee may release a draft of the $3.5 trillion social policy bill as early as next week, including the tax hikes needed to pay for it. That’s left wealthy taxpayers scrambling to do proactive planning, especially to avoid a possible doubling of the top capital gains tax rate to 39.6%, up from 20%, which could be retroactive to the date legislation is introduced.

For folks who need to raise cash or reposition assets, it may be prudent to sell those assets in the next few days, warns CPA Bob Keebler of Green Bay, Wisconsin in an alert to tax and financial professionals on Leimberg Services.

It’s not just a capital gains tax hike that’s at stake. There are more than half a dozen tax hikes that could be used as revenue raisers in the bill. The Democrats’ social policy goals are ambitious: paid family and medical leave, expanding Medicare to include dental, vision and hearing benefits, extending the enhanced child tax credit as well as provisions to address climate change.

Who would pay for all of this? The Democrats’ budget blueprint promises no new taxes on families making less than $400,000 per year, small business and family farms. It calls for “tax fairness for high-income individuals.”

“You’re going to see a tax increase no doubt,” says Pamela Lucina, head of the trust and advisory practice for Northern Trust. “Everything is sort of fair game.” A Northern Trust white paper, Navigating Possible Tax Policy Changes, hedges the likelihood of various tax hikes in play. It puts an increase in the top individual income tax rate and a small increase in the capital gains tax rate — to 25% or 30% — in the “most likely” category. “We’re acting as if all of these could be part of the final law as they negotiate and search for revenue,” she says.

So the thinking is that tax hikes are going to happen; it’s just a matter of which ones and when. “It’s like picking the NCAA bracket,” says Keebler. “You don’t know what the final deal’s going to look like when it’s carved at 3 in the morning.”

Here’s a laundry list at what could be coming.

Individual income tax hike. The top individual income tax rate could jump from 37% to 39.6% for those making more than $400,000 a year. Planning tips: Accelerate income. Consider Roth IRA conversions.

Higher capital gains tax rate. An Administration proposal would double the top tax rate from 20% to 39.6% on long-term capital gains and qualified dividends. Lucina says that Northern Trust predicts a smaller increase, with a new top rate of 25% or 30% more likely. She’s already been working through the calculus with clients to figure out whether they should or shouldn’t sell assets. “Taxes are a factor, but not the only factor,” she says. One client is selling a food distribution business, and rather than selling outright, he’s selling it on an installment basis which allows him to defer the capital gains. If the tax hike passes, and it’s not retroactive, he can opt out of the installment sale and take the gains all in 2021 under the lower rate. Planning tip: If you don’t need the money to fund short-term goals (1 to 10 years), perhaps you’re better holding off and not selling assets.

Deductions cap. Taxpayers could face a new cap on deductions including charitable contributions as well as IRA/401(k) contributions. Keebler has this one on his short list. So, for example, someone who pays taxes at the top 37% rate, would no longer get deductions applied at that full rate. Instead, the benefit of deductions would be capped at a 28% or 26% rate. Planning tip: Consider maxing out your retirement plan contributions and bunching charitable deductions into 2021.

Tax carried interest as ordinary income. Imagine an accountant, lawyer and the manager of a private equity fund all working on the same deal and at the end, the private equity guy pays half the tax rate on his income from the deal that the others pay because of the “carried interest” loophole. A proposed tax law change, which has bipartisan support, would level the playing field by taxing carried interest as ordinary income instead of as capital gains. Planning tip: Consider accelerating carried interest payouts.

Capital gains taxation at death or gift. Under current law, when you die, your appreciated assets get stepped up in value to their value at the date of your death. That means neither you nor your heirs ever pay capital gains tax on the unrealized appreciation of the asset before your death. The Administration has proposed making such unrealized capital gains taxable at death (or when an asset is transferred by gifting). There would still be a $1 million tax exemption for unrealized appreciation ($2 million for a married couple—plus the $500,000 per couple capital gain exemption for a primary residence). Planning tip: Incorporate flexibility into trust documents to allow for swapping of assets.

Return of the Gift & Estate Tax. The Trump tax cuts of 2017 temporarily doubled the estate tax exemption through 2025, leaving fewer than 2,000 estates a year that faced federal estate taxes. The exemption level is now $11.7 million per individual, set to revert to $5 million, indexed for inflation. What’s possible? A return of the base level exemption to $5 million, meaning a return of gift and estate taxes for many more families. Less likely—a return to $3.5 million (the 2009 level). Planning tip: Consider making lifetime gifts to heirs now.

Restricting GRATs and Valuation Discounts. There are many other estate planning techniques that the rich use to avoid taxes, and some of these could be in play. GRATs and valuation discounts let wealthy families transfer assets to their heirs virtually tax-free. Proposals under consideration include a 10-year minimum annuity term for GRATs, with a minimum gift amount to be contributed. Valuation discounts, used to pass down family businesses, could be curtailed, but this would get more pushback. Planning tip: Meet with your wealth advisor or estate planner to discuss wealth transfer techniques in 2021. These changes are less likely to be included in legislation as they could be made through regulations, which wouldn’t be retroactive.

Lift the SALT deduction cap. Finally, there’s one potential tax break for the rich in the mix! The budget blueprint calls for revamping the SALT deduction: relief from the current $10,000 cap on the state and local tax deduction. This would mean big savings on federal taxes, especially for folks in high-tax states.

McLovin · 09-05-2021, 09:33 PM

Interestingly, I was reading about a part of that before clicking over here.

https://www.forbes.com/sites/leonlabrecque/2021/07/15/the-new-death-tax-in-the-biden-tax-proposal-major-tax-change/?sh=b06692f1e35c

Really punitive stuff.

McLovin · 09-05-2021, 09:33 PM

Carryover basis. The proposed rule would mandate that the heirs would take on, or ‘carry-over,’ the basis of the decedent. In addition, the proposed rule would make death a transaction. Thus, in the example above, the heirs would have the basis of $200,000. In addition, they would have to pay capital gain taxes on a $2 million gain. Worse, if this gain took their Adjusted Gross Income over $1 million, they would pay ordinary income rates on the capital gain, plus the Net Investment Income Tax for total of 43.4%. Cost under the proposed rule goes from zero under step-up to $868,000 under carryover basis.

McLovin · 09-05-2021, 09:34 PM

It gets worse. The examples above do not include state income taxes. In the Treasury ‘Green Book’, the Treasury indicates that the income would be ‘taxable income to the decedent on the Federal gift or estate tax return or on a separate capital gain return.’ This does not clarify how state income or inheritance taxes may be imposed. In addition, the Green Book conspicuously ignores the estate tax. This means that there would be effectively two or even three death taxes: federal capital gains, possible state capital gains and federal estate taxes.

tabs · 10:29 PM

Stop your whining and pay your fair share..you gotta pay the tab you bin runnin up sumtime.

Do.you think that the majority of Americans who dont have a pot to piss in gave a rats azz about the rich? The rich are always the first to go in a revolution..go.ask Louie or Nickie.

The mob is comin to take from the haves to give the poor their welfare checks. They will tax the rich until they aint rich no more. This socialism won the minute the econ shut down in 2020..

And what did you think was gona happen..

tabs · 09-05-2021, 10:27 PM

I am waitin for you boyz to have the moment of realization...that omg moment.

hbueno · hbueno's Garage

I'm a temporarily embarassed billionaire, I'll pay my accountants and lawyers to game the new tax regime once I'm back on my feet...

kach22i · kach22i's Garage

Quote:

Originally Posted by nvr2mny

Please excuse me if this is being discussed. If it isn’t, why? Sure seems to be quiet on the news cycles.

This is O.T. not PARF.

nvr2mny · nvr2mny's Garage

Quote:

Originally Posted by kach22i

This is O.T. not PARF.

I only posted it in parf due to the fact it’s only the scumbag dems behind all this. There, does THAT make a diff?

dw1 · 09-06-2021, 09:57 AM

Quote:

Originally Posted by nvr2mny

I only posted it in parf due to the fact it’s only the scumbag dems behind all this. There, does THAT make a diff?

You did not post this in "PARF", you posted it in the general off-topic forum.

greglepore · 09-06-2021, 11:33 AM

Its not being discussed because it won't affect most people. The max capital gains rate going up, maybe. The basis step up is a hole that should have been closed long ago (and I say that as someone who benefited from it). Not many estates over 5 million (really 10 if you're married and split your assets appropriately).

Skillet83 · 09-06-2021, 11:46 AM

Quote:

Originally Posted by greglepore

Its not being discussed because it won't affect most people. The max capital gains rate going up, maybe. The basis step up is a hole that should have been closed long ago (and I say that as someone who benefited from it). Not many estates over 5 million (really 10 if you're married and split your assets appropriately).

You need to read this thing a lot closer. It is a mass redistribution of wealth from the producers to the non-producers. And, if you are of any color other than cracker, you will be a major recipient. It is loaded to the gills with social justice funding. Biggest theft, giveaway in history.

Yes, I will be impacted. My rate goes back to 39%. I sold a company bout 6 years ago, got so fed up of working my ass off 60-70 hrs. a week, paying 400k+ in income tax on top of paying tax on retained earnings my business needed along with all the BS of taking care of customers and employees.

Zeke · 09-06-2021, 01:33 PM

Quote:

Originally Posted by Skillet83

You need to read this thing a lot closer. It is a mass redistribution of wealth from the producers to the non-producers. And, if you are of any color other than cracker, you will be a major recipient. It is loaded to the gills with social justice funding. Biggest theft, giveaway in history.

Yes, I will be impacted. My rate goes back to 39%. I sold a company bout 6 years ago, got so fed up of working my ass off 60-70 hrs. a week, paying 400k+ in income tax on top of paying tax on retained earnings my business needed along with all the BS of taking care of customers and employees.

Sounds like you had it pretty good except the long hours. You could have hired one or two more to handle your difficulties in delegating. Apparently you had already jumped from the frying pan into the skillet

...and burned out.

hbueno · hbueno's Garage

Quote:

Originally Posted by Skillet83

You need to read this thing a lot closer. It is a mass redistribution of wealth from the producers to the non-producers. And, if you are of any color other than cracker, you will be a major recipient. It is loaded to the gills with social justice funding. Biggest theft, giveaway in history.

Yes, I will be impacted. My rate goes back to 39%. I sold a company bout 6 years ago, got so fed up of working my ass off 60-70 hrs. a week, paying 400k+ in income tax on top of paying tax on retained earnings my business needed along with all the BS of taking care of customers and employees.

A married couple filing jointly and paying $400,000 in income taxes is earning about $1,300,000 a year in wage income. You may be surprised to learn most people won't care much about your "predicament".