TAX LAW CHANGES - WHO NEEDS TO GET READY?
BY: PATRICK R. COTE, CFA, CFP®
The tax field is not typically thought of as very exciting. However, every now and then there is a big change that creates a lot of buzz in the industry. We are in one such period now with several proposed tax plans from President Biden and Congress.
While we don’t yet know which (if any) plans become law, there are a number of important taxation areas being discussed:
- Higher corporate income tax rates
- For higher-income households ($400K+), higher tax rates for personal income and Social Security payroll taxes. Expected to apply to income, capital gains and dividends.
- Lower estate tax thresholds and a higher estate tax rate
- Elimination of the step-up in tax basis at death
- Cap on the value of 1031(b) exchanges for real estate transactions
- Shift in treatment of 401K contributions from pretax deduction to a 26% tax credit
Since it is not yet clear what will actually be implemented as law (or when), it does not make sense to take drastic action. For many people the changes may not result in a large impact on their taxes. However, if any of the following apply, you should start to review your situation now and be ready to make changes if/when the new tax law is implemented:
- Household income >$400K
- Assets with unrealized gains > $1 million, if they are not in retirement accounts
- Overall assets > $3.5 million (> $7 million if married) including home, investment/retirement accounts, life insurance, investment real estate, etc.
Many people end up paying more in taxes because they do not pay attention to their own tax situation. Good preparation now can make a big difference when it comes to minimizing taxes for you and your family now and in the long run.