President Biden, with slight majorities in both the House and Senate, maybe looking to make progress on the tax proposals that he presented during his presidential campaign. In this article, we are going to take a close look at two particular proposals that may go into effect during President Biden’s administration, and we will give you some insight into how those proposals may impact your own estate planning.
If, after reading this article, you have additional questions about the Florida estate planning process and the different types of plans that may be available to you, then we welcome you to contact the Palm Beach County lawyers at Doane & Doane, PA. Call today at 561-656-0200 or fill out our online contact form.
1. Lowering the Gift and Estate Tax Exemption
Currently, you can transfer up to $11,580,000 during your life, or at death, without having to pay any federal gift or estate tax. Only a tiny percentage of Americans have that much money in an estate. Once you pass that exemption amount, however, it is possible that you could be taxed at 40% of any gift of cash or property.
During the presidential campaign, President Biden suggested that the nation go back to the gift and estate tax exemption that existed in 2009. If we went back to 2009 figures, then the estate tax exemption would go down to $3,500,000, the gift tax exemption would go down to $1,000,000, and anything above those amounts could be taxed at a top rate of 45%, rather than 40%.
Now, how might that impact your taxes? Let’s look at an example. Assume that you have a company worth $10 million, and you want to pass that company to your children.
If you made that gift under current law, you would not have to pay any federal gift tax at all – the gift is less than $11.58 million. Yet, if President Biden’s proposed changes go into effect then you could owe 45% of any gift you make over $1 million. Accordingly, the company you gift to your children would have no tax liability on the first $1 million, but the remaining $9 million would be taxed at 45%, which would mean about $4.05 million in taxes.
2. Increasing the Capital Gains Tax on Millionaires
One of the main areas of contention in our politics has been focused on the Capital Gains Tax – that is the tax that investors pay on any money they make in their investments. Traditionally, capital gains have been taxed at a much lower rate than income. On the one side, people argue that capital gains are like a double tax because the money used to make investment income has already been taxed once, therefore the tax should be lower or nonexistent. On the other side, people maintain that it is unfair that we tax the money people earn with their own hard work at a rate higher than the money people earn by simply investing, therefore any type of income (from wages or investments) should be taxed at the same rate.
While we will certainly not resolve the debate here, President Biden has proposed something that can be seen as a middle-of-the-road approach between the two opposing sides. Specifically, Biden suggests that the tax rate on wage income and investment income be the same for people who earn over $1 million annually. Thus, middle-class wage earners who may make a little income in property or securities investments would still pay a lower capital gains tax, whereas millionaires would pay the same tax rate for their wages and their investments. It is one way in which Biden seeks to equalize tax benefits across all tax brackets.
The capital gains tax is currently about 20%, and the tax rate for the highest wage earners is 37%. Biden’s specific proposal is to raise the highest tax bracket earners to a 39.6% tax rate, and tax capital gains at the same 39.6% rate for those with income higher than $1 million.
So, assume that you made a $500,000 profit from investing in the stock market. Under the current 20% capital gains tax rate, you would owe $100,000 in taxes. However, if you make more than $1 million per year, and Biden’s tax proposal becomes law, then your tax rate on those capital gains would be 39.6%, equalling $198,000 in capital gains tax. That $98,000 difference is significant.
To conclude, if your income is higher than $1 million per year, then you may see some changes in your tax liability if Biden’s proposals become law. There are, however, many estate planning tools that you can use now to minimize your tax liability or the liability on your heirs. Before any new tax changes become law, you should strongly consider speaking with an experienced estate planning attorney to make sure that you protect your estate as much as possible.
Contact Doane & Doane for Solid Estate Planning Advice
Founded in 2003 by husband and wife legal team, Randell C. Doane and Rebecca G. Doane, Doane & Doane provides legal and financial services to families, individuals, and businesses throughout Southeast Florida.
Estate planning is about much more than just giving away property. It is an act of love and kindness, with the ultimate goal of providing for the future financial security of your loved one. At Doane & Doane, our tax and estate professionals help people plan for retirement, consider various types of wills and trusts, make provisions for loved ones, figure out future child support, and minimize tax liability. Experienced wills and trusts attorneys know which tools to use to get the best results for their clients. Our lawyers can help you determine which tools are best suited to your specific circumstances.
Since the day we opened our doors, we have worked hard to earn a reputation as one of the region’s most prominent tax and estate planning law firms in Palm Beach County, Florida. Our dynamic team includes the firm’s founding partners, experienced associate attorneys, and an outstanding team of paralegals, legal assistants, and support
Call the Palm Beach County lawyers at Doane & Doane, P.A. You can reach us at 561-656-0200. Call us today.
The information in this blog post is provided for informational purposes only and is not intended to be legal advice. You should not make a decision whether or not to contact an attorney based upon the information in this blog post. No attorney-client relationship is formed nor should any such relationship be implied. If you require legal advice, please consult with an attorney licensed to practice in your jurisdiction.