Possible Tax Changes Ahead – Make a Move or Sit Tight?

During last year’s Presidential campaign, then-candidate Joe Biden ran on a platform of expanded social programs paid for, in part, by proposed tax increases on wealthy Americans. The American Family Plan announced at the end of April would expand paid family leave, increase access to childcare and prekindergarten education, and make community college tuition-free.

Funding for these programs would be met by sweeping reforms to current tax law, including an increase in top capital gains and income tax rates plus adjustments to rules surrounding inherited assets. Given these potential changes on the horizon, how might you and your family be impacted and should you take action today? Let’s first take a look at some of the proposed changes:

 

Capital Gains Rates
Under current tax rules, the sale of an asset, such as a stock or mutual fund, real estate, and even collectables like coins or jewelry are subject to tax on the gain (less exemptions for certain real estate transactions). Federal long term capital gains rates range from 0% for those in the lowest income tiers to a maximum of 20% plus a 3.8% Medicare surtax for the highest earners. Under the proposed plan, households with incomes greater than $1 million in a given year would pay an increased capital gain rate of 39.6% plus the 3.8% Medicare surtax for a total rate of 43.4%. Taxpayers would also be on the hook for any state or local taxes, depending on the rules of their resident state.


Marginal Income Tax Rates
The Tax Cuts and Jobs Act (TCJA) passed by former President Trump in 2017 reduced the top Federal tax rate for earned income to 37%. President Biden’s plan would restore the top rate to its previous level of 39.6%, in addition to levying payroll taxes on individuals with incomes over $400,000 per year. It would also cap deductions for high income earners, limiting what can be written off on tax returns.


Step-Up in Basis
Individuals who inherit assets currently receive a “step-up” in basis to the fair market value of the asset as of the date of death of the original owner, meaning heirs only pay tax on any appreciation enjoyed between when the assets were inherited and later sold. To discourage people from hanging on to appreciated assets until they die and escaping taxation on the appreciation, President Biden’s proposal would eliminate the step-up in basis and tax inherited assets as if they were sold at the original owner’s death, after applying a $1 million exemption per individual.


What does this mean for you?
Though the vast majority of Americans will not be impacted by these proposed changes, individuals with appreciated investments or real estate may face a much larger tax bill than expected when it comes time to sell or pass down assets. As tempting as it may be to get ahead of potential tax increases in an attempt to “lock in” today’s lower rates, it’s important to remember there are many unknowns that lie ahead as the American Family Plan works its way through Congress.

Instead of making drastic moves today based on what might happen in the future, now is a great time to revisit your plan for appreciated investments, the timing of income, and intentions for passing assets to heirs.

Want to talk more about your specific situation? Reach out to us today.

Women Have What It Takes to Buy a Home in Today’s Hot Market

In today’s competitive real estate market, it takes more than just money to claim the keys to the hot property everyone wants.

“From understanding purchaser responsibilities to realistically assessing risk tolerance, savvy buyers best navigate fast-paced bidding wars,” says Carey Hughes, principal broker with Keller Williams Realty Professionals in Portland, Oregon.

This holds true for would-be homeowners across the board.

But as more women take the lead in purchasing homes, they face an uphill battle getting there.

To read more, check out Anika’s full Business Insider article.

Trek to Retirement

In late March, I set out into the backcountry of central Oregon with eight other women, all on snowshoes or cross-country skis. We traversed more than 22 miles in the heart of the Oregon Cascades, breaking trail and staying in huts. The terrain was steep, the visibility was poor, the snow was deep and there was a stiff wind.

What does this have to do with investing? The trek was reminiscent in three ways:

Feeling inferior. I was among incredibly fit and experienced outdoors women. This was my first trip of this kind. The others were triathletes, competitive cyclists and expert mountaineers. If we were a sports team, I’d have been keeping the bench warm.

I suspect I saw myself as more amateur than my companions did. I can’t tell you how many competent, educated and bright women I meet who are reluctant to acknowledge all that they’ve done for their financial future or voice the insightful questions they have. They downplay their knowledge because they aren’t “experts.”

One of the best things about investing is that it doesn’t require expertise to begin. In fact, the quote of “80% of success is showing up” couldn’t be truer. Just getting started, by putting your money to work in the market, can be one of the best decisions you make. From there, you can always improve and adjust your portfolio, as you learn and grow along the way.

Constraints work. Our Oregon Cascades adventure was a last-minute trip, so I didn’t have time to do a ton of research or prep beforehand. This worked in my favor. I could only concentrate on what gear to pack, food to bring and the correct mapping software to download. I couldn’t overthink it.

The same approach can be helpful with investing. You can easily get sucked into the latest articles on bitcoin, the “next Amazon,” why you ought to buy gold and how to invest in today’s economy. But in all likelihood, you’ll fare far better if you stick with the essentials—a handful of mutual funds that give you broad diversification at low cost.

Start small. A few hours into the trek, we lost some gear and our physical map. The visibility was poor and it was snowing hard. An hour of backtracking failed to locate our lost items. Our 25-pound backpacks became heavier and our pace slower. We became concerned we wouldn’t make it to the first hut in eight hours, let alone by dark.

The experience gave new meaning to putting one foot—or snowshoe—in front of another. Our success depended on this simple approach.

Retirement can seem like an incredibly daunting and distant goal. There may be a house that needs work, daycare and education costs that seem to go nowhere but up, and aging parents to comfort and care for. There will be days when getting out of bed and dressing yourself seem like an accomplishment. And they are. Every action you take, every decision you make, toward your long-term goals are a step in the right direction, no matter what your pace. Remember, you’re human.

Taking action builds momentum. Before you know it, your regular savings toward retirement will compound and grow. Your eight-hour trek will seem like six hours. Conditions will improve and the wind will be at your back—and all that was made possible by taking those initial steps.

This article first appeared in HumbleDollar.