Let’s Talk About Tax

By Private Vista on May 20, 2021

Ben Franklin is often quoted with “nothing is certain except death and taxes”. Albeit true, I’m sure he never thought both would be the trending topic of discussion amidst a Pandemic and the probability of an increase in tax rates. As the Biden administration looks to sell their tax proposal to the American people, here are some of the highlights (and/or lowlights) of the current proposal:

Income Tax

Increasing the top individual tax rate from 37% to 39.6% on individuals with incomes above $523,600 and married couples with incomes above $628,300.

Resume the Social Security tax (6.2% for each the employee and employer) on income above $400,000. Currently, employees and employers pay this tax on income up to $142,800.

Continue the additional 0.9% payroll tax for those that earn above $200,000 and $250,000 for married couples.

Capital Gains Tax

Tax long-term capital gains and qualified dividends at 39.6% for those with an income above $1 million (increase from 20%).

Eliminates the step-up in basis for those inheriting after-tax assets.

Estate Tax

Decrease the Estate Tax exemption to $3.5 million (from $11.7 million) per person while increasing the top rate to 45% (from 40%).

Limits the lifetime exemption amount to $1 million.

Corporate Tax

Increase the corporate tax rate from 21% to 28%.

Implement a new form for the alternative minimum tax (AMT) by requiring corporations with financial statement income in excess of $100 million to pay tax of 15% on its financial statement income.

Tax Deductions and Credits

Limit itemized deductions for those earning more than $400,000 by reinstating the Pease limitations.

Cap itemized deductions at a 28% rate when income exceeds $400,000.

Child Tax Credit would increase to $3,600 per child under 6, and $3,000 per child ages 6 to 17 for individuals earning less than $75,000 and married couples earning less than $150,000. Instead of receiving a credit on their taxes, parents would receive these funds on a monthly basis (i.e. $300 or $250 per month per child).

Those with higher incomes may still claim the former $2,000 tax credit until income surpasses $200,000 for individuals, and $400,000 for married couples.

With these proposed tax law changes, the Biden administration expects to raise an additional $3.3 Trillion over the next 10 years at a cost to the top 1% of earners of approximately 7.7% on their income. It is also estimated that these changes would shrink GDP by roughly 1.6%.

Tax and Estate Planning are essential parts to your overall Financial Plan. With that said, it can be challenging to build your Plan around “proposed” changes to the tax code. At Private Vista, we recommend staying in regular contact with your Financial Planner and Accountant to ensure you are taking advantage of any opportunities as these new “proposals” become laws.

Article By: Randy Porzel, CFP®, RICP®. Randy is a Partner and Lead Advisor at Private Vista LLC. He began his financial planning career as an intern and worked his way up through every job at the firm. Randy finds joy in taking clients through Private Vista’s planning process, using tools that answer questions and clear uncertainty so that clients can look forward to their idea of an enriched life. In his free time, Randy enjoys serving on the boards for the Chicago Lighthouse for the Blind and The Darien Lions Club, whose mission is to serve those in the community with visual impairments.

The views expressed represent the opinions of Private Vista, LLC and are subject to change. These views are not intended as a forecast, a guarantee of future results, investment recommendations, or an offer to buy or sell any securities. The information provided is of a general nature and should not be construed as investment advice or to provide any investment, tax, financial or legal advice or service to any person.

Additional information, including management fees and expenses, is provided on Private Vista, LLC’s Form ADV Part 2, which is available upon request.

Hightower Advisors, LLC is an SEC registered investment adviser. Securities are offered through Hightower Securities, LLC member FINRA and SIPC. Hightower Advisors, LLC or any of its affiliates do not provide tax or legal advice. This material is not intended or written to provide and should not be relied upon or used as a substitute for tax or legal advice. Information contained herein does not consider an individual’s or entity’s specific circumstances or applicable governing law, which may vary from jurisdiction to jurisdiction and be subject to change. Clients are urged to consult their tax or legal advisor for related questions.