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During the 2020 election campaign, President Biden made a number of promises that included changes to tax law, including an increase in social security tax of 12.4%; Increase in the highest marginal tax rate for ordinary income to 39.6%; Limitation of individual deductions to 28% of the AGI; Section 199A Deduction Expires; Capital Gain Rate increased to 39.6% for realized gains over $ 1 million; Unified Loan Reduction to $ 3.5M for Land and $ 1M for Gifts; Eliminating the increase in the cost base in rebates; and, among other things, the recognition of gains on estimated assets in estates. There are other proposed tax changes, including the wealth tax filed by Senators Elizabeth Warren and Bernie Sanders, which will impose an excise tax on individual assets greater than $ 50 million at 2% per annum and 3% per annum for assets greater than 1 billion Represents US dollars.
Not all of these proposals will pass the evenly-divided Congress, and it is likely that an agreement, much like the deal between Congress and the Obama administration, would be cut if the 2012 inheritance tax changes were lost. Even if the details of the tax changes are uncertain, we can assume that there will be an increase in income and transfer taxes for the wealthy over the next two years. As the tax changes have not yet come into effect, now is the time to anchor the existing tax law as much as possible. Planners need to be careful and budget for the possibility that actions taken prior to tax changes will not have their intended effect. Your clients may find themselves in the unenviable position of having lost access to assets with no appreciable tax advantage.
Although the goal may be to save income and transfer taxes now and in the future, the goals for individual taxpayers include protection from retrospective tax changes; Maintaining access to the assets when the situation changes; take full advantage of the current gift and estate exemption of $ 11.7 million; Property protection and protection against possible property tax.
Consultants need to be proactive in presenting strategies to clients as time is limited. Customers should be reminded that there is uncertainty about both changes and when to change them. and that the changes can be applied retrospectively from early 2021. Because of the uncertainty, this is a situation where you should avoid putting all your eggs in one basket and using multiple techniques: this will speed up the tax event in some cases and delay income tax in other cases, even for the same client.