Displaying items by tag: biden
All advisors are already nervous about Biden’s planned tax hikes on wealthy clients. As a quick refresher, the Biden administration wants to raise long-term capital gains taxes to 39.6% (in addition to applicable local and state taxes), as well as eliminate the “step-up in basis” at death in inheritance. This has major implications on its own, but advisors and CPAs have brought up another significant issue with the tax hikes completely aside from the increased level of taxation: it is extremely hard to document the original basis for many assets. This is particularly true for illiquid assets like real estate and small businesses—which often constitute the largest portion of an estate. According to Ed Zollars, a CPA, “How do you estimate the basis, especially when the person who had the best chance to answer that is deceased?”. KPMG summarized the difficulty of the situation further, saying “For a flow-through entity that’s been around for 45 years, in theory, I’d have to go through 45 years of tax returns … Many times, records aren’t handily available, and obtaining transcripts from the IRS is hard, too”.
FINSUM: On top of everything mentioned, remember that basis changes all the time in both LLCs and real estate, either by capital put in the company or through 1031 exchanges. This will be a reporting nightmare!
Any advisor has likely read about Biden’s new tax proposals on the “wealthy”…see the full story on our partner Magnifi’s site
ESG has already taken the financial world, nearly dominating every other headline over the past couple of years…see the full story on our partner Magnifi’s site
Biden is going after the mother of all tax hikes, though it is deftly spread across a number of different areas so it takes significant effort to add it all up. That is partly by design, but partly by necessity, since the wealthy tend to face taxes across a number of different parts of their financial lives—income, capital gains, corporate taxes, inheritance. The reality though is that if you combine all of Biden’s proposals, wealthy individuals living in states with high income taxes (like New York) could face tax bills of over 80% when accounting for all the areas above. This would include a new top personal income tax rate, new higher corporate tax rates, the elimination of “step-up basis” in inheritance taxes (and potentially a higher inheritance tax rate), and state taxes of over 14% in New York.
FINSUM: This only precedents for this level of taxation in US history were during World War I and World War II, when tax rates got into the 90% percent range. Even then, though, there were easy loopholes and deductions to allow individuals to avoid that top rate.