Although President Biden's push for federal tax changes have so far been blocked, advisors say it would be incorrect to discount the possibility of significant changes in how wealthy clients are taxed.

“The biggest misconception may be that the push for drastic federal income tax changes for high-net-worth [taxpayers] is doomed or over,” said Gerald B. Goldberg, co-founder and CEO at GYL Financial Synergies in West Hartford, Conn. “The Build Back Better Act has hit a wall and has been pronounced ‘dead’ by some, or almost dead. But ‘almost dead,’ ain’t ‘dead.’”

Even without the proposed changes in Build Back Better, advisors have challenges to consider. For example, the current 20% gains tax can be vexing if a taxpayer expects to realize significant long-term capital gain from investment transactions or the sale of business or real estate, Goldberg said.

Also, according to current law, tax changes implemented by the Tax Cuts and Jobs Act (TCJA) will expire at the end of 2025.

The estate and gift tax exemption will be $12.06 million per individual for 2022 gifts and deaths, up from $11.7 million in 2021. “This increase means that a married couple can shield a total of $24.12 million without having to pay any federal estate or gift tax,” Goldberg noted. In addition to the federal tax rate, taxpayers also incur the net investment income tax on capital gains of 3.8% and the applicable capital gains tax of their respective states.

Absent new legislation, on Jan. 1, 2026, the exemption will revert to the pre-TCJA exemption ($5 million) adjusted for inflation. “So planning to remove appreciated property from a high-net-worth client while the exemption ... is so high certainly is a consideration,” he said.

The gift tax exclusion also increases for 2022, the first increase in four years.

“Plan with the information we have and provide advice that holds up under the existing and proposed tax policies,” said Geoff Curran, wealth advisor at Merriman in Seattle. “A timely example of this is whether to diversify a concentrated stock position with a substantial unrealized capital gain now or in the future. The bias toward avoiding taxes now often leads individuals to take on more risk than necessary. ... We’re seeing this play out in real-time [now] with the double-digit decline in tech stocks after their bull run.

“Lock-in fixed rate debt—wherever it makes financial sense—to protect against inflation and rising interest rates,” Curran said. “The second-best move is to start making strategic gifts to children and grandchildren to take advantage of the [tax exclusions].” He also recommended taking advantage of tax credits for purchasing electric vehicles and installing solar panels.

“Energy credits are being reduced. Those who have not yet put solar on their homes, may wish to do that in 2022 to take advantage,” added Ann Etter, partner at Goodney & Associates in Northfield, Minn.

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