Estate & Tax Planning
Date: June 2, 2021

Death and Taxes

As many of you know tax time is upon us. Because of the unusual circumstances due to the Coronavirus pandemic, the Treasury Department and Internal Revenue Service extended the Federal tax filing deadline for 2020 to Monday, May 17th. Taxpayers who need additional time to report can request a filing extension until Oct. 15th by filing Form 4868 through their tax professional, tax software, or by visiting the website. Although this will extend the time to file one’s taxes this does not extend the time to pay Federal income tax due. Individuals should pay their federal income tax by May 17th, 2021 to avoid interest and penalties.

Biden’s tax plan was briefly presented through the “American Jobs Plan” and again on April 28th during Biden’s first address to a joint session of congress. Biden’s “American Families Plan” will outline specific increases for individual taxes, while “The Made in America Tax Plan” is geared towards addressing the corporate tax code.

These proposed plans are purely speculative, and the actual bill may include or exclude these proposed provisions. This list here is not exhaustive. A few of President Biden’s major tax proposals include:

1: Raising the top individual federal income tax bracket from 37% to 39.6% – Those individuals with ordinary income of more than $400,000 a year would be affected by this change. This would adjust the current top tax bracket from 37%, adjusted by the Tax Cuts and Jobs Act, to the “Pre Trump rate” of 39.6%. Again, there is no increase expected for those individuals earning less than $400,000 a year.

2: Raising Capital Gains Taxes for those earning $1,000,000 a year or more – Investors earning $1,000,000 or more a year could be subject to a Capital Gains Tax rate of 39.6% on investments. Essentially paying ordinary income rates rather than the current top Capital Gains of 20%.

3: Offering Health Insurance & Childcare Tax Credits – Low and middle-income families could receive welcomed relief from these measures. The child and dependent tax credit may allow for up to $8,000 in qualified child and dependent care expenses which would be an increase from the current credit of $3,000. Health Insurance premiums may also be capped at 8.5% for lower to middle-income families by providing access to refundable health care premium tax credits.

4: Offering student debt forgiveness, and credits for first-time home buyers – Qualifying home buyers could receive up to $15,000 when purchasing their first residence if claimed in the year of purchase. With regards to forgiveness for student debt, Biden called for $10,000 of federal student loan debt forgiveness though some lawmakers urge forgiveness of $50,000 per student.

5: Increasing estate and gift tax and reducing the estate tax exemption – Estate and gift tax rates could be raised from 40% to 45% and the current estate tax exemption could potentially be reduced from its current level of $11.7 million to $3.5 million.

6: Eliminating the step-up in basis at death – A stepped-up basis allows assets that are passed to an heir at death to be reassessed at their current value for future tax purposes. This allows heirs to avoid capital gains from the point of the original purchase to the value at the date of death, assuming there is a gain to be realized. If the new tax law is passed in its current form, it may cause individual filers to pay taxes on capital gains amounts over $1,000,000 at the time of death. For couples, there is an exemption of $2,000,000.

7: Increasing the corporate tax rate from 21% to 28% – Former President Donald Trump’s tax plan, The Tax Cuts and Jobs Act (2017) lowered corporate taxes from 35% to 21%. Biden is proposing to raise the corporate tax rate to 28%.

President Biden’s goal is to incentivize job creation and investment here in the United States. He will attempt to accomplish this by making it less of an advantage for US corporations to move their production offshore and utilizing tax havens such as Bermuda and the Cayman Islands. These new tax increases are also slated to raise additional dollars for green energy, education, and infrastructure spending. Other items high on the President’s list of priorities include eliminating tax preferences for fossil fuels.

President Biden’s tax plan must still be presented and approved with a vote in Congress before it can be signed into law. As we all know this may or may not be enacted at all. Generally, a President and congress ask for much more than their willing to accept so that the law they finally pass contains something meaningful.

“In this world, nothing can be said to be certain, except death and taxes.” – Benjamin Franklin

As tax legislation takes shape and we have a better understanding of changes that will be realized, we will review and suggest planning changes that may be helpful for you and your family. Tax efficiency and the passing of assets after death are usually top priorities for our clients. In the meantime, if you have questions regarding any of these potential changes please reach out to our office and update us at your convenience.

The CERTIFIED FINANCIAL PLANNER™ Professionals and Certified Estate Planners™ at The Normandy Group offer serious investment planning for today’s complex world.  By combining investment, tax, and estate planning strategies we can help you achieve your goals. Contact us today for a complimentary consultation.

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Derek Landis