Lane Keller

Lane Keller

My last article was released to the Advocate on Feb. 14 of this year. Here we are, over four months later with very little real clarity on what income and estate taxes will look like for 2021 or 2022. What we do have is the President’s “American Families Plan” presented to Congress and released on April 28 for spending and the proposed tax changes to pay for it. The plan includes tax cuts and extended credits for lower income taxpayers and increased rates and IRS enforcement for taxpayers earning over $400,000.

The president’s plan expects to raise $700 billion over 10 years through “revitalized enforcement” of existing tax laws “to make the wealthy pay what they owe.” It would require financial institutions to report information on account flows, increase investment in the IRS and ensure that the additional IRS resources go toward auditing those with the highest incomes. How long will it take to revitalize the IRS and financial institutions to update reporting?

The highest income tax rate will increase to 39.6%, rescinding the 2017 tax cut. For households making over $1 million, all income will be taxed at 39.6% equalizing the rates paid on capital gains and dividends.

In addition, the plan will eliminate step-up in basis upon death over $1 million ($2 million per couple). Transfers at death or by gift will result in a deemed sale for capital gains purposes.

Other pending plans include Bernie Sanders’ “For the 99.5% Act.” The act reduces annual exclusion gifts to a total of $20,000 per year (that’s total, not per recipient), reduces the estate and gift tax exemption to $3.5 million and will raise the top gift and estate tax rates up to 65% for the top bracket. Sanders’ plan also attacks Grantor Trusts, Generations Skipping Trusts and valuation discounts.

Elizabeth Warren’s “Ultra-Millionaire Tax of 2021” includes a 2% annual tax on the net worth of households and trusts valued over $50 million and another 1% over $1 billion. Now I know what an “Ultra-Millionaire” is! Thanks Elizabeth. No one knows how this would be accomplished every year.

It certainly seems that Biden’s plan took some of the original platform proposals to Congress and left the rest of the original proposals to Senators Sanders and Warren.

It is likely to take several months for tax legislation to work its way through Congress. Most of my reading indicates that effective dates for legislation will likely be between date of enactment and Jan. 1, 2022. While it is possible the enacted reforms could be made retroactive, it would be uncommon.

As I said in my first article, no one really knows where this will all shake out and this article is not all inclusive and only hits the highlights.

I suspect a lot of negotiating has already taken place and there are a few Democrats in Congress that will not go along with the Draconian effect this will have on agriculture and family-owned businesses.

Change is coming and it is very important that you spend some quality time with your CPA, attorney and financial advisor. At the very least, you need to have a good handle on where you stand today and consider what planning options are available.

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Lane Keller CPA/CFP® is a managing member of Keller & Associates CPAs, PLLC and KMH Wealth Management, LLC with over 30 years of experience in tax preparation and planning.

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