Worried About Taxes? Consider These Ideas

If you’re worried about taxes (and who isn’t?), consider these ideas for 2020 and beyond.

Daily, I communicate with professionals, mentors, and people who inspire me. Every year my tax specialist, who prefers to remain anonymous, shares an informative newsletter with friends and clients. She’s a master at her craft, and I’m fortunate to be able to tap her expertise.

Below are several of her reminders I selected for RIA readers because who isn’t worried about taxes?

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Keep In Mind The Following Democratic Tax Policy Themes For ‘High Incomers.’

The Tax Policy Center estimates the proposed Biden Administration tax increases would raise roughly $3 trillion over the next decade, so ‘High incomers’ should pay attention to the following proposals:

  • A 6% tax rate increase for taxable income > $400,000—defined as “high incomers.”
  • Cap the tax benefit of itemized deductions for high incomers to 28%.
  • Restore the 3% (Pease) limitation on itemized deductions if income > $400,000.
  • Additional payroll taxes (FICA) for high incomers—unlimited wage base >$400,000.
  • Increase capital gains rates imposed on ultra-high incomes (over $1MM) (23.8% to 39.6% shift or cap gains taxed at ordinary income rates.
  • Increase dividend tax rates to equal all other types of ordinary income for ultra-high incomers.

Rosso’s take: I’m not sure how ‘high incomers’ are determined. During the Obama administration, a high-income earner was determined to have a taxable income of $250,000 or greater. To me, it’s all an arbitrary shot in the dark.

‘High incomers’ are likely business owners with employees. Increased taxes on the group may lead to stifled economic growth and ultimately trickle-down negatively to employees. Another proposal to have capital gains taxed at ordinary income rates can stifle entrepreneurial pursuits because lower tax rates are a great incentive to take on business risks.

Investors are rethinking strategies to transfer appreciated assets to loved ones because of Mr. Biden’s proposal to remove the stepped-up basis on appreciated assets. This change can negatively affect the middle as well as upper-class households.  

 

The Payroll Tax Isn’t All Bad.

Personally, I don’t believe that payroll taxes (12.4%) on wages of $400,000 or greater is harmful because payroll taxes support Social Security (at least I know where the money goes). Close to 20% of older Americans depend on it as their only source of income. The pandemic’s impact on payrolls could potentially jeopardize the Social Security system, and raising payroll taxes on higher earners would ensure the program’s viability for all of us.

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Disclosure: Real Investment Advice is powered by RIA Advisors, an investment advisory firm located in Houston, Texas with more than $800 million under management. As a team of certified and ...

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