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President Biden’s Tax Legacy: How To Plan With Educated Guesses

| March 04, 2021
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At Credent Wealth Management, our goal is to keep you informed about relevant policies that could impact your financial plan. We want to share with you a few of those updates.  As with our other Credent Connect releases, these highlights will tend to focus on personal financial planning topics. 

President Biden's Tax Legacy: Here is what this means for you

Due to a focus on the COIVD-19 pandemic, very little movement has been made on President Biden’s original tax policy proposals floated during his campaign.  Even so, we will revisit some important elements of his plan that have gained further traction in recent days.  Democrats have control with razor-thin margins in both the House and Senate, which opens the door to potentially significant tax and regulatory policy changes in 2021.  At this time, legislation has not passed, but we are proactively monitoring the movement on your behalf.

Key Tax Proposals

Please note, these are only proposals at this time.

  • Personal and Corporate Taxes
    • Top income tax rate will most likely revert to 39.6%, up from 37.0%, for individuals with income greater than $400,000
    • Increase of the capital gains rate for income above $1.0 million
    • Increase social security taxes for individuals with income above $400,000
    • Increase of the corporate tax rate to 28%, and the possible introduction of a corporate version of an alternative minimum tax
    • Removal of the tax-deduction for retirement account contributions
  • Estate and Gift Taxes
    • Elimination of the step-up in cost basis at death on inherited assets
    • Reduction of the estate tax exemption from the current $11.7 million amount to pre-TCJA (Tax Cut and Jobs Act) levels of $5.0 million (indexed for inflation), or possibly even lower, to $3.5 million

We believe a January 1, 2021 retroactive tax increase is not likely. However, we have seen it happen before, such as the retroactive increase of the estate tax rate from 50% to 55% in 1993.  We are likely to start hearing more about a legislative process called "budget reconciliation."  With a simple majority vote in the Senate, reconciliation allows some types of legislation to be moved forward. However, given the ongoing recovery from COVID-19, and the delay of non-COIVD relief legislation, it is expected that most tax increase provisions will be effective as of January 1, 2022.

Please refer to the handout for further details on the above key tax proposals.

We will continue discussing President Biden’s Tax Legacy with Balancing the Risk and Opportunities: Where do we go from here?  Please contact Credent Wealth Management if you would like to discuss these ideas in more detail.

Investment advice offered through CX Institutional, a registered investment advisor.

Disclaimer: As with any financial plan, your individual needs are specific, and you should consult your tax and legal advisors before engaging in any changes to your tax or estate plan.  Credent Wealth Management does not provide tax, legal, or accounting advice, and this material has been prepared for informational purposes only.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. The economic forecasts set forth in the presentation may not develop as predicted.

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