Planning for federal tax will increase

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Taxpayers with incomes greater than $ 400,000 will have to watch out for possible tax changes later this year as federal Democratic lawmakers claim taxing the rich would mean more trillions in revenue and a reduction in income inequality.

“What counts as ‘wealthy’ is sure to be part of the debate,” said Sarah Allen-Anthony, managing partner of the global Private Client Services Group at Crowe in South Bend, Ind.

“Our clients generally expect tax increases to be a fait accompli,” said Jose Reynoso, director of advanced trust and estate planning for Clarfeld Citizens Private Wealth in Tarrytown, NY.

“If the changes in income tax take effect from 2022, we have to plan for the whole of 2021,” said Reynoso. “If the Effective Date is earlier, the 2021 tax reduction options may be very limited. The uncertainty about when these potential changes will go into effect is the boogeyman raising himself above the best of plans. “

It is likely that normal income tax rates for the wealthy will rise to pre-tax reform levels, “peaking at 39.6% instead of 37%,” said Joe Roberts, senior vice president and senior wealth strategist, Rockefeller Capital Management in Philadelphia. Second, we will see a reduction in inheritance tax exemptions. Third, I think the estate tax rate will rise above the current 40% tax rate. It’s hard to say whether this will be a blanket increase to around 45% or whether it will involve a tiered structure like Sen.’s proposed new 99.5% law. [Bernie] Sanders. “

Roberts also advised looking for top-tier tax increases in states like California and New York. “Arizona nearly doubled its highest income tax bracket in 2021,” he said. “Other states could follow. The pandemic resulted in significant budget deficits in high-population countries. “

Marc L. Scudillo, managing director of EisnerAmper in Woodbridge, New Jersey, said there were also concerns about state and local tax deductions and corporate tax rates increasing adjustments to financial and estate planning, “he said.

The recently introduced Federal Reasonable Taxes and Equity Incentives Act (STEP) could seriously transform valuation haircuts, rules for granting trust, and increasing the base for assets when customers die and leave unrealized capital gains. Roberts said these were long-standing fundamental elements of estate and gift tax planning.

In terms of capital gains, “many business owner customers are considering sales before year-end,” said Roberts. “While I think the capital gains tax hike will be a tough provision for Congress, some customers in 2021 will face seven- and eight-digit differences from selling in 2022.”

Given the changes that may be made, there are some asset transfer measures customers can take right now. One is to maximize the current $ 11.7 million exemption by donating an irrevocable trust or using the low interest rates to shift the appreciation out of the estate. Scudillo also recommends considering life insurance for favorable tax treatment.

Bruce Primeau, CPA and President of Summit Wealth Advocates in Prior Lake, Minnesota, encourages clients who have enough time to donate $ 15,000 annually to their children or grandchildren and is considering giving a lump sum to use some of their current assets Exclusion of gift tax.

Having to plan can be frustrating for clients when the philosophy of tax law seems to change with each choice.

“Most of our customers recognize the need for higher revenue to fund infrastructure programs and pandemic relief,” said Roberts, “but I think everyone would appreciate the depoliticization of taxes and a reduction in the volatility of the past few years.”

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