Did You Notice This Proposed Tax Increase?

By Yvonne Marsh, CFP®, CPA

There’s a lot of press surrounding President Biden’s proposed personal tax increases to help pay for the American Families Plan, and it’s important to know which ones apply to you and your family. At the moment, these proposals are just that – and not final. Here are two potential tax increases that get a lot of press but probably won’t affect you:

• Individuals with taxable income over $523,600 and couples over $628,300 would revert to a 39.6% top tax bracket from the current 37%.
• Households with over $1 million in income would see the base tax rate on capital gains and qualified dividends increase from 20% to 39.6%. This type of income would continue to be subject to the 3.8% net investment income tax.

But there is a third proposed change based on assets rather than income that I find the most compelling to watch and which will, arguably, affect more people:

• The elimination of the step-up in basis for inherited non-retirement assets.

Currently, if you buy a share of stock and sell it for a profit, you pay capital gains tax on the profit. Or if you never sold it and passed the stock to your heirs, the entire embedded gain goes away – your heir escapes taxation. But under this new proposal, death is treated like a sale, and your heirs would have to recognize the capital gain you never did. This would apply to non-retirement investment accounts, vacation homes, rental property, family businesses, farms, etc. This rule has a $1 million exemption, so that helps lessen the impact for many households.

Keep your eye on the expiration of the current personal tax rates, which are already legislated to expire in 2025. Taxes will never be cheaper than they are right now, and multi-year systematic Roth conversion strategies should be an integral part of your tax planning between now and then. Needless to say, proactive tax planning will continue to be imperative under these constantly shifting sands of the tax code!

Join me June 15th on Zoom to learn more.

Marsh Wealth Management, LLC
Fiduciary Registered Investment Advisor
504 Ebenezer Road
Knoxville, TN 37923

Financial Planning & Investment Advisory Services are offered through Marsh Wealth Management, LLC (“MWM”), an independent investment advisor registered with the state of Tennessee. Yvonne Marsh is an Investment Advisor Representative of MWM in the state of Tennessee. Marsh Professional Group, LLC is a TN registered public accounting firm and a separate legal entity from MWM. For a detailed discussion of MWM and their investment advisory fees, see the firm’s Form ADV on file with the SEC at www.adviserinfo.sec.gov.