In April 2021, President Biden proposed to increase capital gains tax rates in an effort to fund the American Families Plan, a change that would be retroactive to the date of announcement. In this article we’ll discuss what the move would entail, and its possible impact on the American public.
What are the proposed tax changes under Biden?
The rate hike would increase capital gains tax for the top bracket to 39.6% from its current level of 20%. Those impacted would be those in the top income tax bracket (To see you would fall, consult IRS tax tables and refer to your tax advisor) who sold investments that generated a gain of $1,000,000 or more. This would apply their 2020 tax return beginning as of the date that this tax rate increase was announced in 2021.
Biden’s goal is to correct the fact that wealthy Americans pay lower capital gains tax than their often less wealthy counterparts pay on their wages.
What it may mean for Americans
This rate hike would mean a bigger tax bill for investors with largely appreciated assets. It would also have a potentially large impact on those selling a business that has appreciated in value significantly since it was created.
Will it get passed?
It’s not for certain that this increase will wind up actually coming into effect as the proposal would have to be passed by both arms of Congress.
Proper tax planning is a necessity, regardless of how high or low the rates are. Investors are encouraged to harvest tax losses against gains strategically, make strategic use of tax-advantaged retirement accounts if they are able to and if it makes sense for them, and to time the sale of largely appreciated assets intelligently. All of this can potentially reduce the tax burden you face.
As always, please contact me if any questions.
Dore, Kate. (2 June, 2021). CNBC. Biden’s proposed retroactive capital gains tax hike. Retrieved from https://www.cnbc.com/2021/06/02/advisors-look-for-ways-to-offset-proposed-biden-retroactive-capital-gains-tax-hike.html
Conde, Arturo. (4 June, 2021). Smartasset. Inside Biden’s Capital Gains Tax Plan. Retrieved from https://smartasset.com/taxes/biden-capital-gains-tax
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The opinions voiced in this material are for general information only and are not intended to provide specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor. No strategy assures success or protects against loss.