Displaying items by tag: taxes

(Washington)

One of Biden’s most important campaign promises was that he would not raise taxes on the middle class, or more specifically those earning less than $400,000. Accordingly, it is a surprise to see a new proposal from Democrats that would do exactly that. Biden and the Democrats appear to be going after “stepped up basis” in inheritance taxes as a way to raise tax revenue and fund the infrastructure bill. Right now, when inherited assets get transferred, their basis resets to whatever the market value is at the time of inheritance. In this way, heirs only pay capital gains on the increase in value that occurs while they hold the asset. Biden and his administration wants to change the rules in order to keep the basis in place from when the original buyer purchased the asset. This change would not only affect the wealthy in a big way, but also the middle class, as the basis for many assets would suddenly be very low, meaning large taxes would be due no matter the size of the estate being transferred. A good example might be an inherited condo from a parent that was bought 30 years ago and has appreciated from $100,000 at purchase to $600,000 now. Under the current system, a middle class earner who inherited and decided to immediately sell the condo would pay almost no taxes. However, under the new proposal, almost $100,000 in taxes would be due because basis would be applied to the original purchase price!

FINSUM: This is a big change that advisors need to be watching closely!

(Washington)

Many advisors may not have realized it yet, but the new COVID relief package passed by Congress recently has many benefits for upper middle class Americans and even those in the mass affluent category (which constitute tens of millions of clients for advisors). Other than the $1,400 checks, there are also two lesser known details advisors need to be aware of. If a client qualified for a check last time, but did not get one, they can claim the money they would have been entitled to as a credit against their taxes. It is a bottom line deduction that comes directly out of taxes owed. If no taxes are owed, they should get the credit as a refund check Additionally, the package offers enhanced child tax credits. This is $3,600 per child under 6 years old, and $3,000 per child between 6 and under 18 years old. The latter used to be for those under 17, so this helps those with 17 year-old children. Finally, those who have student loans that will be forgiven will not have to pay taxes on the forgiven amounts, which is a massive benefit for those who qualify.

FINSUM: There is a lot more to this package than many realize. Advisors should take a deeper dive to see what applies to their clients.

(New York)

Even before the pandemic and subsequent crisis, the high-yield Muni market failed to deliver the returns after taxes that the corporate bond market…view the full story on our partner Magnifi’s site

(Washington)

This is one of the most uncertain times in recent history, and not just because of political divisiveness and the pandemic, but because many of the new administration’s policies are likely to be very different than the Trump administration’s. That extends to taxes, where there is a high degree of anxiety about forthcoming changes, most of which high earners expect to be punitive. Because there is a wide range of possible outcomes, advisors need to work hard to plan for what different scenarios might look like. Accordingly, now is the right time to beef up on tax planning staff, or at the least review your tax planning playbook and keep a close eye on the news.

FINSUM: In a year, when new tax policies are known, you want to be able to tell clients “don’t worry” we have been planning for this and you will be fine. The work to get there needs to start now.

(New York)

Annuities are a widely available and popular product, and they are heavily utilized by retirees whose main focus is income. Therefore, it would make sense that tax planning around that income would be more of a major consideration—especially because annuities have some peculiarities as it regards taxation—but in general it does not seem to be an explicit topic. One of the first things to remember is the difference between qualified and nonqualified annuities—the former being in retirement plans, the latter not. Both require mandatory withdrawals after age 72. It is critical to remember that only interest, not principal is taxable when withdrawing money from a nonqualified plan. This is a big danger zone that some retirees fall into. Two other important notes: annuity interest used to fund long-term care insurance can be used tax free; and spouses can assume ownership of an annuity in the event of the death of their spouse tax-free.

FINSUM: For advisors who readily deal in annuities, this info will be second nature. However, there are a lot of advisors who are just starting to get into annuities and this info will be quite useful.