Democratic presidential candidate and former U.S. Vice President Joe Biden will introduce his running mate, US Senator Kamala Harris, during their first press conference together in Wilmington, Delaware, on August 12, 2020.
Olivier Douliery | AFP | Getty Images
Although former Vice President Joe Biden has proposed raising taxes on the richest households, accountants are telling their clients to stand up for pat now.
As Biden prepares to accept his party’s nomination for president at the Democratic National Convention this week, high-income earners are beginning to question whether it’s time to reconsider their tax plans.
“A lot of people think Democrats will take the White House and the Senate, and as a result, changes will happen sooner rather than later,” said Jim Bertles, managing director of Tiedemann Advisors in Palm Beach, Florida.
Indeed, taxpayers with taxable income above $ 400,000 could see their individual income tax under a Biden presidency. The former vice president has also called for raising taxes on wealth transfer.
To make those changes, Democrats would probably also need to retain their majority in the House.
“As a result, people come to us, lawyers and accountants and say, ‘Let’s join in some transfer tax planning and take advantage of today’s rates while they exist,'” Bertles said.
In comparison, President Donald Trump signed the Tax Discounts and Jobs Act in late 2017, which lowered individual income tax rates across the board, roughly doubling the standard deduction and eliminating personal exemptions. He also doubled the exemption of estates and gifts to more than $ 11 million from 2018 to 2025.
The changes under a Biden administration seem earth-shattering for the wealthiest households, yet accountants advise them to watch and wait.
“Now making decisions and moving assets based on an election that can go a certain way, based on tax policies that can be created is a little too risky,” said Jeffrey Levine, CPA and Director of Advanced Planning at Buckingham Wealth Partners in Long Island, New York.
“There is not a great need to act today, but I would think about it,” he said.
The Biden campaign did not immediately return emails seeking comment.
Income tax
Accountants focus for the most part on two parts of Biden’s proposals: income tax and land use planning.
On the income tax side, Biden calls for raising the top individual income tax rate to 39.6% from 37%, and applying it to taxpayers with taxable income above $ 400,000, according to an analysis by the Tax Policy Center.
He also talks about an increase in payroll taxes. Biden would apply the portion of 12.4% of Social Security tax – which is normally shared by both the employee and the employer – to income over $ 400,000, the Tax Policy Center found.
Currently, the Social Security tax is subject to a wage capital of $ 137,700 and is adjusted annually.
Finally, Biden would also increase rates on long-term capital gains and qualify dividends to 39.6% – the same top rate as regular income – for those with incomes in excess of $ 1 million, according to the deTax Foundation.
Currently, the tax rate for longing for capital gains is 20% for single households with more than $ 441,451 in taxable income ($ 496,601 for joint married filing) by 2020.
Now making decisions and moving assets based on an election that can go a certain way, based on tax policies that can be created is a bit too risky.
Jeffrey Levine
CPA and Director of Advanced Planning at Buckingham Wealth Partners
The tax rate applies if you sell investments that you have held for at least a year.
Selling valued investments, such as converting traditional individual retirement accounts to a Roth and paying income tax now at a lower rate may seem like a good idea if you think taxes will increase later.
Prevent reactions to knee. The decision depends on how the elections turn out and what legislation can follow, as well as your own financial situation.
“Make sure it affects you personally,” said Tim Steffen, CPA and senior consultant in the group advisor training at Pimco.
“If you retire next year and your income falls, it may be that those higher taxes will not affect you – or if the higher tax rates go up, it will only affect those who are in the brackets. to begin with. “
Boast for taxation of estates
Last month, the Democratic presidential candidate collaborated with scenario Bernie Sanders, I-Vt., And the two formed six task forces to release a 110-page policy document. The document provides some insight into what we can expect from a Biden administration.
“Estate taxes should also be increased to the historical norm,” the task force wrote in the policy plan.
In fact, the Tax Rebates and Jobs Act roughly doubles the amount you can transfer to other people – whether at death or as a lifetime gift – without converting the 40% estate and gift tax.
The exemption for gifts and real estate in 2020 is $ 11.58 million per individual.
Biden has set his sights on the “step-up a basis”, a provision in the tax code that allows an individual to retain an asset for years, view it appraised and then inherit it upon death.
The basis of the owner – the original investment in the assets – rises to market value on death, which means that the heir is subject to little to no capital gains tax when he sells it.
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Biden proposes the taxation of the unrealized capital gains in the assets at death, which essentially eliminates the step-up.
Wealthy households are likely to use gift-giving strategies to address this change, said Bertles of Tiedemann Advisors. “This can be as simple as giving assets to a trustee or directly to children as grandchildren when using the exemption,” he said.
While you may not want to refuse your assets too soon, it does not hurt to talk to your financial advisor about what you can do next.
This could include getting an appreciation for valuable assets you might want to pass on to the next generation, Levine said.
“If I thought about a transfer later this year, I would start getting those ratings so you don’t rush in time when the end of the year closes,” he said. “But otherwise, do not give away the assets now.”
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