Our Recent Posts

Archive

Tags

Biden's tax agenda for investors



Major implications of Biden’s new “American Families Plan” is targeting households with incomes $400,000 and above. Proposed changes include an increase of the maximum federal income tax rate from 37% to 39.6% and a maximum capital gains adjustment from 20% to 25%, for those earning $400k (individual) / $450k (married couples). Income earners with $5m+ will see a new 3% surtax.


Advanced retirement planning strategies that many people currently enjoy are poised to go away. This includes Backdoor Roth contributions: when you earn too much to make a Roth contribution directly, instead you can make a non-deductible IRA contribution followed by a Roth conversion. Also, after-tax 401(k) contributions followed by Roth conversions are also on the slab. Self-employed people with income above $400k will see a new cap on taking the Qualified Business Income (QBI) deduction.


Cryptoenthusiets will also not be happy to see that those investments (digital investments), commodities, and foreign exchange will be subject to the “Wash Sale” rule^2 with this tax plan. This already applies to stocks, where investors can’t realize a tax loss after selling a losing stock if they buy a like-kind investment back within 30 days. This year may be a good time to sell digital assets and capture the tax loss if it applies.


All this, if it successfully passes through Congress in its current form, will take effect in 2022. Considering the infamous infighting in government, if anything passes, it might likely see changes.


Ultra-high income earners will likely continue to deviate from the fairness that the new tax bill purports. High net worth art collectors who dominate the market, buy a high-priced piece of art and then donate it to a museum will continue to enjoy the 50% deduction on income; this can be millions of dollars in tax savings. Opportunity Zones, which provide capital gain tax “forgiveness” if investors divert sale proceeds to qualified, low-income housing, have already seen ripe corruption, with 25% of all investments directed to a small area by New York.^3 Billionaires who famously pay zero dollars on their income will continue to borrow against their company stock holdings. A loan is not considered income and isn’t taxed.


At Eureka Wealth Management, I keep my clients informed of the latest relevant financial news that may impact their financial plans. I also work with clients’ tax advisors to develop a sound tax and retirement strategy. Call for a free, initial consultation at (760) 537-0791 or book online at eurekawealthmanagement.com.


For tax questions, consult your tax advisor.


Sources:

“Analyzing Biden’s New ‘American Families Plan’ Tax Proposal by Jeffrey Levine; kitces.com 9/15/21.

^2: https://www.investopedia.com/terms/w/washsalerule.asp

^3: https://www.nytimes.com/2021/10/10/opinion/opportunity-zones-tax-loopholes.html