The Biden administration is pushing for a seismic shift in taxes for the wealthy, but the uncertainty of lawmaking makes picking smart tax tactics for the rest of 2021 tricky.
In the final analysis, the unknowns of Biden's tax plans make this an unusual, even frightening, year for clients and their tax planners.
“Most definitely a difficult time for planning for the high-income taxpayer,” said Thomas P. Terry, a CPA and partner at Friedman LLP in Riverhead, N.Y. “Many are looking at their portfolios for potential moves but don’t know if it’s already too late.”
Raymond Edwards, national tax director at Aspiriant in Los Angeles, added, “All we know are the president’s wishes. No new tax bill has been introduced and, with Congress deeply divided along partisan lines, it’s difficult to conclude what any final legislation might include.”
The tax changes outlined in the Biden budget will have a major impact on high-net-worth individuals—everything from income tax rates to estate exemptions to capital gains rates, said Barbara Taibi, partner in EisnerAmper’s Personal Wealth Advisors Group in Iselin, N.J. “We expect this to be the year with the largest transfer of wealth through gifting and estate planning than we’ve ever seen.”
Tony Wu, tax office managing partner at Crowe and leader of the firm’s Global Private Client Services practice in Southern California, said that some of the large-ticket items in the new Green Book of the administration’s fiscal 2022 budget tax proposals include:
• Increasing the top marginal tax rate from 37% to 39.6%.
• Taxing appreciation in assets transferred by gift or upon death with an exclusion of $1 million per person.
• Eliminating like-kind exchanges for gains exceeding $500,000.
• Eliminating the “carried interest” by taxing it as ordinary income.
Also proposed is taxing long-term capital gains and qualified dividends at ordinary income rates for individuals with adjusted gross income exceeding $1 million ($500,000 for those married and filing separately). The resulting highest rate would be 43.4% (39.6% plus the 3.8% net investment income tax).