Significant tax changes are expected in the near future if President Biden’s tax proposals go through, and anyone with an estate plan aligned with previous tax strategies should consult with professionals to update their plan. An asset protection lawyer on the East End of Long Island can help you determine the possible impacts of tax law changes so that you have an updated estate plan to support you and your goals.
The tax plan’s primary changes include raising taxes for individual income filers, capital gains, and payroll.
In this article, discover seven fundamental proposed changes that might influence the effectiveness of your current plans. Even if you didn’t have an asset protection plan before, now is an excellent time to re-evaluate your toolkit and documents with the help of an estate planning attorney.
1. Repeal TCPA Aspects Associated with High-Income Tax Filers
For any tax filers with over $400,000 in taxable income, the previous tax rate of 39.6% would apply. Additionally, the president plans to repeal one other key aspect of the TCJA for high-income filers with a 20% deduction on qualified business income.
What does this mean? The wealthiest households in the U.S. would face a tax increase of around $300,000 a year, whereas most middle-class families would see a $260 per year increase. Some models estimate that the top 1% of tax filers would pay for nearly 80% of the proposed tax changes. This means there’s an ample opportunity for wealthy families to schedule a time to discuss these issues with an asset protection lawyer on the East End of Long Island; varying strategies can be used to help minimize the tax burden.
2. Impose 12.4% Social Security Payroll Tax for Wages Above $400k
Employers should be aware that both employers and employees would face a 6.2% tax on all earned income above $400,000. However, no additional Social Security tax would be imposed on those earning anywhere from $142,800 and $399,999. Employers should be prepared to update their payroll tax plans according and potentially handle questions from workers about this higher take out of their checks.
3. Raise the Corporate Income Tax to 28%
Before the Tax Cuts and Jobs Act (TCJA), the corporate income tax rate was 35%. That dropped in 2018 with the act’s passage down to 21%, and Biden plans to bring it back up. Corporations who have adapted their tax strategies in light of the lower rate should be prepared to make potential shifts in their planning.
Business owners who also have individual estate planning needs should leverage an asset protection lawyer on the East End of Long Island to understand better how this influences their future.
4. Create Corporate Minimum Tax
Many of the changes impacting business involve a revisit to the Tax Cuts & Jobs Act, but most experts believe that Biden will increase corporations’ minimum tax. According to those who have analyzed the administration’s proposals, the top corporate tax rate will go to 28% from 21%.
What’s important to note with this proposed change is that it’s still below the typical rate for comparison in Europe but would indicate a 33% increase from what these corporations currently pay. While some experts believe this will not lead to substantial changes in corporate tax tactics, it might be worth speaking with your tax professional about whether existing plans need to be adapted.
5. Establish a Corporate Minimum Tax on Book Income
One of the biggest possible changes to taxes involves how corporations would be taxed based on their book income. Such a change would enable corporations to consider net operating loss carryovers and tax credits, both of which can constitute a big difference between taxable income and actual book profits for companies.
Loss carryovers, write-offs, and special deductions account for much of the difference between book income and taxable income. This change would impact corporations with a minimum of $100 million in book income and carry a minimum 15% tax rate.
6. Double the Tax Rate on GILTI and Impose it Country by Country
Standing for global intangible low-taxed income would represent a doubled tax rate from 10.5% to 21% while also eliminating the qualified business asset investment program built into the TCJA. This primarily relates to controlled foreign corporations and would change the worldwide average application to account for country-by-country numbers instead.
7. Temporarily Increase the Generosity of the Child Tax Credit and Dependent Credit
Two major changes here have been proposed by Biden so far: making these payments available to all parents in the form of a monthly check and increasing the amount of the child tax credit. However, the plan does appear to be a temporary one since it’s intended to last “the duration of the COVID 19 crisis.” It’s unclear how the administration defines “easing up” in terms of the crisis, for example, but you can find similar wording and structure in the HEROES Act that applied only for the year 2020.
Is It “Time To Step Up” and Speak to an Asset Protection Attorney on the East End of Long Island?
An estate planning attorney is there to guide you in all aspects of updating your plans in light of any new possible tax changes. This year, more than ever, it is critical to have a relationship with an estate lawyer you can trust to help you protect your personal assets and align your business tax strategy.
If you have questions about these updates’ implications, you need to speak with a trust and estate attorney on the East End of Long Island about your options and create or review your personalized plan.
At Sheryll Law, P.C., we believe in providing exceptional customer service. That includes educating our clients and residents on the East End of Long Island about all aspects of estate planning — or as we call it, “legacy planning.” On Wednesday, March 17 at 3 p.m. Eastern, Founder Jay Sheryll, Esq. will host a free webinar entitled, “Time to Step Up!” He will explain how President Biden’s tax plan will affect estate tax and discuss overall tax changes and federal policies that impact estate planning during the webinar.
The webinar is free, but registration is required. Contact Sheryll Law, P.C. at (631) 825-9648 or complete this form to reserve your place today.
To Recap, Here Are the 7 Fundamental Proposed Changes of the Biden Tax Plan That Might Influence The Effectiveness of Your Current Plans
- Repeal TCPA Aspects Associated with High-Income Tax Filers
- Impose 12.4% Social Security Payroll Tax for Wages Above $400k
- Raise the Corporate Income Tax to 28%
- Create Corporate Minimum Tax
- Establish a Corporate Minimum Tax on Book Income
- Double the Tax Rate on GILTI and Impose it Country by Country
- Temporarily Increase the Generosity of the Child Tax Credit and Dependent Credit
Vital Topics Sheryll Law, P.C. Will Cover in the March 17 Webinar, “Time To Step Up!”
During Sheryll Law P.C.’s free webinar on Wednesday, March 17 at 3 p.m. Eastern, Jay Sheryll, Esq. will discuss:
1. The Elimination of the Step-Up in Basis
What is a step-up in basis? It’s the readjusted value of an appreciated asset for tax purposes when it is inherited. It allows the basis in an asset to be stepped-up to the date-of-death value, making the gain during a person’s lifetime non-taxable. The law considers the higher market value of the asset when it is inherited, to determine the taxes on it. In most cases, when a beneficiary receives an asset, the value of that asset is higher than when the original owner came into possession of the asset. To minimize the capital gains tax on the beneficiary, a step-up in basis is applied to the asset. Upon the death of the person who owned the asset and the ensuing transfer of property to the beneficiary, a step-up in basis is applied. For tax purposes, the amount of a taxpayer’s investment in property is normally employed to calculate things like figure depreciation and amortization.
The Vital Takeaways Regarding the Step-Up in Basis:
- For tax purposes, it readjusts the value of an appreciated asset over a time period
- For inheritance assets, it is employed to calculate tax liabilities
- Many economists have suggested eliminating the step-up in basis, and instead, lowering capital gains taxes
Jay Sheryll, Esq. will explain the implication of the elimination of the step-up in basis on estate planning, during the March 17 webinar.
2. The Rollback of the Estate Tax Exemption from $11.2 Million Per Individual to $3.5 Million Per Individual
The TCJA approximately doubled the amount of money an individual can transfer without incurring federal estate and gift taxes. Currently, the exemption stands at $11.2 million per person. Although this exemption is due to expire at the end of 2025, under the new Biden Administration, it could potentially end sooner. According to the Tax Policy Center, the exclusion could be reduced to $3.5 million for estate taxes and $1 million for gifts.
On March 17, in his “Time to Step Up?” webinar, estate planning attorney Jay Sheryll will discuss the ramifications of this rollback of the estate tax exemption and what you can do about it in terms of your estate planning.
Don’t delay! Reserve your place at our free webinar, “Time To Step Up!” on March 17 at 3 p.m. Eastern. Contact Sheryll Law, P.C. at (631) 825-9648 or complete this form now.
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