Regular followers of the news (again) found out in depth what most of us already knew. Many, if not most, millionaires – and billionaires in particular – do not pay taxes. Period. Or, when they do, they are paying a much smaller percentage of their income than ordinary people.
The Biden government is trying to pump new resources – from people to working capital – into the Internal Revenue Service. IRS has been starved for years by politicians who either just don’t like taxes, don’t like them for their wealthy donors, or think the IRS has been politicized. Attempts have been made to outsource heavy debt to private debt collection agencies. And failed.
ProPublica provided documented evidence that billionaires often don’t pay taxes. Or if they pay, it is nowhere near what many consider to be their fair share. Or in the same percentages that non-millionaires pay on their income.
So if the nation’s richest people don’t pay taxes (or pay a lot), who will? Who keeps Uncle Sam afloat and pays for all the projects elected officials approve so they can stay in office?
Do you have a mirror on hand?
Much of this money comes from inheritance taxes, which affect many of our families when our estate is distributed. And if you work for the government or are retired, you almost certainly have an estate. And it’s probably more extensive than you think, which is why pretty much everyone should be aware of both current tax laws and pending proposals from the White House and other sources.
The chances of meaningful tax reform that would help you are slim this year, next year, or the year after that. Too many people – accountants, lawyers, auditors, planners and lobbyists – depend on the complexity of our tax code for a living.
The introduction of a flat tax or a flat tax with no limit would make them unemployed. Even if you are an arrogant optimist, it is best to plan the status quo for the foreseeable future. And plan to pay more taxes than Warren Buffet, Bill Gates, and Jeff Bezos in the next few years.
But a significant change is possible.
If you want your estate to be treated the way it should be treated, changing inheritance tax rules and laws need to be understood and dealt with where appropriate. That means being aware of what Congress and the White House have in mind to fundamentally change inheritance tax laws. Changes that could leave your family with a much larger tax liability in the future.
The proposals are almost always referred to as “reforms,” a key for you to protect your wealth.
For an update on current and planned estate and inheritance tax law, I asked former IRS attorney Tom O’Rourke to join me on this week’s episode of Your Turn at 10 a.m. here or on the Washington, DC area radio at 1500 Clock. He has specialized in tax and inheritance law for several decades.
Many of his clients are current or former federal agencies. Some of them are millionaires thanks to their TSP balance or a paid up home.
He says that virtually all federal agencies are worth a lot more than they think, and that it is entirely possible that you might have a million dollar fortune. But you need to know that, and then you need to know what to do to make sure it benefits the people you want. To make sure they don’t get hit with a big rudder bite when the time comes.
Here’s a preview of what he’ll be talking about on today’s show:
Congress has proposed a number of amendments to tax laws. Senator Bernie Sanders introduced the For the 99.5% Act, which could significantly reduce inheritance tax exemptions. The President also proposed several important changes to the tax laws. These changes could affect the income and inheritance tax planning strategies of federal employees and retirees.
While taxes certainly affect all of us, they shouldn’t be at the forefront of any estate plan. Rather, the most important goal is to make sure you have a plan that will protect you and your loved ones. All individuals must have at least one basic estate plan that includes a medical living will, personal financial attorney, and will and / or trust. Once this baseline is in place, it can be refined to minimize the tax burden.
The current state inheritance tax exemption is $ 11.7 million per person. For practical reasons, inheritance taxes are not an issue in most estate plans. The For the 99.5% Act proposes reducing the inheritance tax exemption to $ 3.5 million per person. Even at this reduced level, most federal employees and retirees don’t have to worry about inheritance tax.
President Biden proposes that the preferential treatment for capital gains and the abolition of the tightened principle be lifted. He also proposes raising the top tax rate from 37% to 39.6%. The president has promised that tax laws with incomes less than $ 400,000 per year will not be affected by changes to the tax law.
Capital gains are taxed at favorable rates. For most natural persons, these tax rates are 15% or 20% – rates that are significantly lower than the tax rate for other income. The President’s proposal would abolish this preference and tax capital gains at the same rate as other forms of income.
Perhaps the most important change proposed is to eliminate the “tiered base”. Under current law, the asset’s tax base is increased when an asset passes with the death of the owner. For example, if someone bought a home in the 1960s for $ 35,000 that was worth $ 800,000 at the time of death, the base of the asset would be “upgraded” to its fair market value at the time of death. The $ 765,000 increase in value is completely forbidden from income tax. If the president’s proposal goes into effect, any previously untaxed increase in value would be taxed on the death of the owner of the asset.
While the proposed changes may not affect many people, these changes at least provide a chance to review your existing estate plan and make sure it continues to suit your needs. If the proposed changes could affect your estate, it is advisable to speak with your lawyer to determine what steps, if any, you can take to limit the negative impact of these changes on you and your loved ones.
Almost useless factoid
From Jonathan Tercasio:
From 1912 to 1948, Olympic juries awarded official medals for painting, sculpture, architecture, literature and music. Every work had to be inspired by sport in some way.
Source: The Atlantic