tax changes for individuals

Possible Tax Changes for Individuals, and What You Can Do About It

The one thing about tax policy in the United States is that it is always a bit of a moving target.  Politicians know that tax policy is a fairly direct way of creating incentives and disincentives for certain behavior, and thus tax policy always seems to be altered as the political winds change.  

For example, when the U.S. wanted more people to drive electric and hybrid vehicles ten years ago, it created a substantial tax credit that could be enjoyed by those who purchased an electric or hybrid car.  Similarly, in New York State, in particular, the tax on cigarettes has recently been increased to a fairly prohibitive level as a way of creating a disincentive for smoking.   

Currently, there are two tax proposals that were made by President-elect Biden during the campaign that could have a significant impact on high-income earners if those proposals become tax policy in the new Biden administration.  Specifically, those proposals involve gift and estate taxes, and capital gains taxes for high earning individuals.  

In this article, we are going to take a close look at those two proposals that might come to fruition under the Biden administration, and we are going to discuss the ways in which you might be able to avoid any major impact on your taxes this year or next.  If, after reading this article, you would like to discuss your own tax situation, we invite you to call the Sarasota tax reform attorney, Mary E. King, P.L.  

The Law Office of Mary E. King, P.L. can make sure that your tax issues are resolved efficiently and at the lowest cost to you.  Please fill out our online contact form, or call us at 941-906-7585 today.

Proposal 1 – Reduction in the Gift and Estate Tax Exemption

You are currently able to transfer up to $11,580,000 during your life, or at death, without having to pay any federal gift or estate tax.  Once you pass that exemption amount, however, you would be taxed at 40 percent of any gift of cash or property.   

President-elect Biden has proposed, however, that the U.S. should go back to the gift and estate tax exemption that existed in 2009.  That means that the estate tax exemption would go down to $3,500,000, the gift tax exemption would go down to $1,000,000, and anything above those amounts could be taxed at a top rate of 45 percent, rather than 40 percent.  

Let’s talk about how that could impact your tax liability.  Let us, for example, assume that you have a business worth $10 million, and you want to give the business to your children.  

If you made that gift this year, then you would not have to pay any federal gift tax, because the gift is below the $10 million exemption cap.  However, if President-elect Biden’s proposal becomes tax law, then you could owe 45 percent of any gift you make over $1 million.  So, your $10 million gifts would be tax-free on the first $1 million, and the remaining $9 million would be taxed at 45 percent, which is a tax of $4.05 million.

As you can see, there is a big difference between a gift tax of $0 and $4.05 million.  Accordingly, you may want to consider discussing your tax strategy with an experienced tax planning attorney.  

Proposal 2 – Higher Taxes on Capital Gains for Those Making Over $1 Million 

President-elect Biden campaigned on a number of tax proposals that were geared towards equalizing tax benefits across all tax brackets.  Thus, one proposal made by President-elect Biden was to have taxpayers who make over $1 million pay the same tax rate on investment income as well as wages.  That is a significant departure from previous policies given that capital gains have traditionally been taxed at a much lower rate than regular income.   

The tax on long-term capital gains is currently 20 percent, and the tax rate on wages for those in the highest tax bracket is 37 percent.  President-elect Biden seeks to raise the rate on wages to 39.6%, and also increase the top tax rate on long-term capital gains to the same 39.6% for those with income higher than $1 million.  

Let’s take an example.  Assume that you make more than $1 million annually, and you own XYZ stock.  Over the years, the stock has accumulated a capital gain of $500,000.  Under current law, your capital gains tax would be 20 percent of the gain, or $100,000.  However, under President-elect Biden’s proposal, your capital gains tax would be 39.6 percent, or $198,000.  That $98,000 difference shows that your capital gains tax will almost double if Biden’s tax proposal becomes law.  

As you can see, if you are a high earner, your taxes may change significantly in 2021 if the tax proposals presented by President-elect Biden become law.  That is why now is a good time to schedule a consultation with a seasoned tax planning attorney.    

Consult with a Sarasota, Florida Tax Reform Attorney Today and Get the Help You Need

Having a Sarasota tax reform attorney at your side to advise you on options and strategies for responding to the IRS is worth its weight in gold.  

Consider reaching out to the Law Offices of Mary E. King to help.  Tax matters can be complicated, and thus, it is always helpful to have someone in your corner who understands the tax law and deals with the IRS on a regular basis.  Indeed, beyond just the stimulus payment from the IRS, there could be other issues with which a seasoned tax attorney can help.  

So, when it comes to dealing with tax relief and tax litigation, you need to talk to a Sarasota tax planning attorney who can help.  Mary E. King has spent her career concentrating in tax law and can help you with tax scams in Florida and elsewhere.  Attorney King has a wealth of information about what types of options would make the most sense for you and your business.

That helps explain why she’s received an A+ rating from the Florida Better Business Bureau. If you have a tax-related issue – no matter how small or how large – setting up an initial consultation with Mary E. King, tax lawyer of Florida, is the first step you should take towards relief.

The Law Office of Mary King P.L. offers complete IRS problem-solving services including all areas from tax debt settlement to planning the most efficient tax strategy for individuals and businesses.  Call us today to schedule an initial consultation.  With years of experience as a tax lawyer in Sarasota for many clients, Attorney Mary E. King can make sure that your tax issues are resolved in your favor.  Fill out our online contact form, or call us at 941-906-7585.   Remember, at the Law Office of Mary E. King, we are focused on solving your tax issues for good.

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