2020 brought significant changes to the country. America saw many covid deaths, months of lockdown, a crippling economy, and massive change in the government. William D King says The start of 2021 brought the new President and the new tax changes. The country has seen a lot in the past few years.
There is a lot to read, understand, and implement from the release of the ‘Green Book’ and changes in the 99.5 Percent Act to massive amendments to the STEP Act. Bringing changes to your investments policies and income methods will become the foremost priority this year.
Sneak peek at the vital Tax law changes with William D King
- Individual federal income tax rate might increase from 37% to 39.6% in 2022.
- Removal of cost basis ‘Step up’ for gains on over $1 million from a family business or the deceased spouse
- Long-term capital gains might increase from 23.8% to 43.4%, including a net investment income tax of 3.8%.
- Progressive increase on the federal estate tax for assets more than $3.5 million valuations.
William D King simplifies the new Income tax changes to give you a glance at what the proposal is about and who it will affect. There are also particular suggestions to consider this year before heading towards the 2022 tax changes. Always discuss with your tax lawyer to get correct and suitable advice.
Proposal #1 Increase in the top margin of income tax bracket with limitations on deductions. The rate shoots up from 37% to 39.6%. The limit on deductions for state and local tax (SALT) will also alter.
Affected: Taxpayers over the income of $400000
Actions worth a try:
- Consider increasing different types of income like bonuses and deferred compensation.
- Try charitable contributions to defer the deductions.
- Consider completion of Roth conversions.
Proposal #2 Increase of long-term capital gains and End carried interest. Also, the present rate of long-term gains is 23.8% for 12 months which might double next year to 43.4%. There will be an end to income generated from carried interest. Tax-free exchanges on 1031 will restrict up to $500000 of gains.
Affected: Taxpayers with more than $1 million annual income including hedge fund managers and realtors with gains over $5000000.
- Complete all the expected sales, exchanges, and distribution this year.
- Make a forecast of the sales for next year and ascertain the exchange rates so to decide if the differential tax payment is worthwhile.
- If you own a C Corporation company, consider paying off the earnings as special dividends this year itself.
Proposal #3 Elimination of Capital gains for Step-up of assets on transfer at death. Presently, the capital gain valuation depends on the person from whom you inherited the income, which will change next year.
Affected: Taxpayers with appreciated assets. People are benefitting from property inheritance and unrealized gains of over $1million in 12 months.
Actions to try:
Evaluation of assets that are not for sale in anticipation of Step-up. Review the estate plan for potential changes in the tax rates. Also, evaluation of trusts for flexibility to ascertain the basis of assets and gains.
There are other tax implications also. Therefore, it is an ocean, and it is always advisable to seek professional help before making any financial decisions.