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URGENT Tax & Estate Planning Opportunities to Consider Before the End of 2020!

Most of us can’t wait for this nasty year to come to a close. As we look ahead to the New Year, however, it is important to remember that, given the results of the 2020 election, the Tax Cuts and Job Act of 2017 enacted by the Trump Administration will likely expire. This year, 2020, could be your final opportunity to take advantage of historic gifting exemptions and tax rates.

President-Elect Joe Biden has announced plans to undo some of the tax regulations introduced by the Trump Administration in the Tax Cuts and Job Acts of 2017. Of course, this depends on the cooperation of the Congress; however, it's crucial to be prepared. Some of the key points in Joe Biden’s proposed tax policy are the following:

  • An increase in the corporate tax rate from 21% to 28% for business income and a 15% minimum tax rate on company earnings as well.
  • An increase to 21% for the corporate tax rate for foreign subsidiaries of U.S. firms.
  • An increase in the current tax rate for individual income from 37% to 39.6% at the $400,000 level.
  • Dividend and capital gains income to be taxed at the same rate as ordinary income rate for income above $1 million.

A large amount of these taxes will come from wealthy individuals and businesses, especially those that hold capital gains on their investments. This could have a significant impact on your wealth as an individual or business. Those with a taxable income higher than $400,000 could see their income tax increase significantly, along with city and state taxes and the proposed escalation of the gift and estate tax.

Taxpayers with high incomes will see both an increase in their individual taxes and the gifts and estate tax exemptions returning to $3.5 million ($10 million per couple) as opposed to the current exemption rate of $11.5 million ($23 million per couple). If you plan on moving your assets to a trust, you must act quickly. Gifting must take place before January 2021!

  • Under the current regulations, a couple can gift $15 million of assets and pay no federal estate and gift tax. Under Biden’s proposal, this same scenario will cost the couple $5 million out of the $15 million gifted.
  • Today, an asset at death is "stepped up" to fair market value. For example, someone holds an asset for many years as it appreciates. Upon the owner's death, the asset is then passed on to an heir. The basis (the owner’s original investment in the asset) rises to the market value as of the date of death and the heir inherits this “stepped-up basis.” If/when the heir sells the asset, they can do so and pay little to no capital gains tax. Biden has proposed eliminating this benefit, however, it is unclear whether he would impose a tax on unrealized appreciation at the decedent’s death or eliminate the basis step-up altogether, so that inherited property would retain the basis that it had in the hands of the decedent.
  • Biden's proposal could also increase estate tax rates to as high as 67% from the current 40%, according to analysis done by the Tax Foundation.

Between now and the end of 2020, current tax law provides an incredible opportunity to transfer assets while minimizing losses. We may never see tax rates this low again! Please give us a call if you wish to discuss!

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