88% There
Two things to discuss today: the economy (getting better) and taxes (going up?).
Let’s dive in.
The light at the end of the tunnel is getting closer and brighter.
- The economy is booming and we’re getting much closer to pre-pandemic levels of economic growth.1
- COVID-19 cases are declining, as the math starts to work for us (instead of against us as it did at the beginning of the pandemic).2 As more folks gain immunity, there are fewer ways for the virus to spread.
- All U.S. adults are now eligible for a vaccine.3
- Restrictions are easing and areas are opening up for travel, meaning we can start planning those missed vacations and seeing loved ones again.
After over a year of uncertainty and dread, the future is looking up.
How are you feeling?
Do you share our optimism? Let us know your thoughts.
Things aren’t completely rosy, of course.
Major COVID-19 surges in India and Brazil mean millions are still suffering.4
Viral variants mean the pandemic may not be “over” for a long time and we still need to be careful not to undo all our gains.
Many folks are not experiencing the economic recovery and may need years to recover what they have lost.
However, let’s not let the work ahead take away from the progress we’ve made.
Let’s take a deep breath and appreciate how far we’ve come since March 2020.
… Deep Breath …
Now, let’s talk about taxes.
President Biden just unveiled a plan to increase taxes on high earners to pay for economic reforms as part of the American Families Plan.5
What’s on the table is likely to change as political wrangling continues, but here are a few things we’ve got to consider so far:
A higher top income tax rate of 39.6% (though it’s not clear yet who falls into that top tax bracket).
Raising the top tax rate on long-term capital gains to 39.6%. With the 3.8% Medicare surtax, that means the highest earners could pay a 43.4% rate on gains.
The elimination of the step-up basis for estates, meaning heirs could get stuck paying taxes on capital gains over $1 million (even if nothing has been sold) when they inherit.
This change could impact folks who, for example, inherit family homes that have appreciated in value. They might want to keep the home, but may not be able to afford the tax bill.
So, should I be worried?
Alert and informed, definitely. Anxious and worried, no.
Here’s why:
This is a proposal. It’s got a long way to go before becoming law and the details may change.
It’s still unclear how much impact these proposed changes will actually have. There are many advanced strategies that can help mitigate the impact of higher taxes. That’s why tax and estate strategies matter so much.
A study done by Wharton Business School suggests that tax mitigation strategies could help avoid 90% of the proposed tax increases on capital gains.6
Bottom line, the proposed changes are concerning, especially with so many details left to be determined, but it’s not time to panic.
We’re paying close attention to the process and contact us if you feel changes to your strategies are needed.
1https://www.bbc.com/news/
3https://www.nytimes.com/
5https://www.cnbc.com/2021/04/
6https://www.cbsnews.com/news/
Chart source: https://www.cnn.com/business/
This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax professional.
The commentary presented herein contains the opinions of Lions Wealth Management, Inc., a State of Minnesota Registered Investment Advisor. This information should not be relied upon for tax purposes and is based upon sources believed to be reliable. No guarantee is made to the completeness or accuracy of this information. Lions Wealth Management, Inc. shall not be responsible for any trading decisions, damages, or other losses resulting from, or related to, the information, data, analyses or opinions contained herein or their use, which do not constitute investment advice, are provided as of the date written, are provided solely for informational purposes, and therefore are not an offer to buy or sell a security. Investments in securities are subject to investment risk, including possible loss of principal. Prices of securities may fluctuate from time to time and may even become valueless. This information has not been tailored to suit any individual.