July 08, 2021 | eFocus @ Legacy

Biden Administration Tax Policy

Kathy BrostBy: Kathy Brost, Trust and Financial Advisor

Are you planning on selling your business or business property? Then you’ll want to keep an eye on these proposed tax changes!

If you are considering the sale of your business and retirement in 2021, be sure to watch the proposed tax law changes so you can maximize your planning.

President Biden’s budget for the upcoming year proposes raising the top ordinary income tax rates to 39.6% from 37%. In addition, for households making over $1 million, the capital gains and dividend rates will increase to 39.6% from the current 20% top rate. That would mean that if you are planning on selling your business or business property, and the net gain from that sale puts your taxable income over $1 million in any one tax year, proceeds from the deal would be subject to a tax rate above 50%.  (federal capital gains rate of 39.6%, plus net investment income tax rate of 3.8%, plus Wisconsin state income tax rate of 7.65% equals 51.05%).  The U.S. Treasury’s Green Book states that the increase in federal capital gains rates under the proposed tax bill is to be applied retroactively to the date of an announcement. So, for example, if President Biden announced his budget on April 28, 2021, increased tax rates could be applied retroactively to transactions closing after that date.

The President’s tax proposal is just that –only a proposal – but budgets only require a simple majority to become law.  Democrats currently control both the House and the Senate, and the next budget goes into effect on October 1, 2021.  Thus, these measures could be passed by Congress this year – and take effect this year – if all Congressional Democrats vote in favor of them.

As always, details matter.  In the President’s current proposal, the increased capital gains rates only apply to individuals who make over $1 million in any one taxable year. Therefore, spreading a sale of your business over two or more years (installment sale) may result in significant tax savings. It’s crucial to pay attention to the proposed business sale and reorganization regulations as well. Changes are likely in store, and staying on top of how they affect your finances is more important than ever!

If you are a Legacy client and have questions, please do not hesitate to contact your Legacy advisor. If you are not a Legacy client and are interested in learning more about our approach to personalized wealth management, please contact us at 920.967.5020 or info@lptrust.com.

This information has been prepared by Legacy Private Trust Company for informational purposes. Any opinions expressed herein represent our current analysis and judgment and are subject to change. Actual results, performance, or events may differ based on changing circumstances. No statements contained herein should substitute for professional legal, tax, or other specialized advice.