Democrats on the House Ways and Means Committee released their tax proposals on September 13, with the legislation covering a wide range of tax issues.

Brian King, Chief Planning Officer at Plancorp, joins Peter on this episode to sort out the wide range of tax issues in the legislation and potentially planning opportunities to consider.

Listen now and learn:

  • The most important aspects of the tax proposal
  • Planning opportunities to consider both this year and in the future
  • Year end tax planning tips that are relevant to all people regardless of the legislation 

Episode

Outline

Brian King is the Chief Planning Officer at Plancorp where he directs financial planning strategy and policy. Brian also is the head of Plancorp’s Family Office.

Prior to Plancorp, Brian spent 5 years at PricewaterhouseCoopers where he provided advanced income tax and estate planning services to high net worth families and corporate executives. 

Brian is a CPA and CFP, and I can’t think of a better person to talk us through the latest tax proposals and potential planning opportunities.

We are recording this live on September 24, but for those of you who are listening via podcast, it’s important to note the date this is being discussed because things can and eventually will change.

Democrats on the House Ways and Means Committee released their tax proposals on September 13.

The legislation hits on a wide range of tax issues and it will now be debated in Congress before being finalized (theoretically at least).

Brian, as you and our team have reviewed the proposal, there is a range of planning opportunities to consider both in the future and perhaps this year, but before we dive into that….can you give us a high level overview of where we are in the legislative process and what we might expect to see in coming weeks?

Tax Proposals

  • Top marginal tax rate
  • Capital Gains and Qualified Dividend Rates
  • Net Investment Income Tax
  • Eliminate use of Back Door Roth Strategy 
  • Limitation of QBI Deduction

What’s not in there is just as big of a deal as what is in there:

  • No changes to the State and Local Tax Deduction (SALT)
  • Tax planning ideas and opportunities if proposals were to pass as proposed
  • 2021 Backdoor Roth IRA Contributions
  • Awareness of Higher Capital Gains Tax
  • Review Tax Planning for Closely Held Business Owners
  • Consider Trust Tax Planning for 2021 and Beyond

Estate Planning Changes

Now the proposed bill also contains significant reforms to estate law, most notably a 50% reduction in the estate and gift tax exemption – while simultaneously increasing the special valuation reduction for real property used in family farms and businesses from $750,000 to $11.7 million.

Although I feel like what wasn’t included was as big of a deal as what was included:

  • No increases to the current estate and gift tax marginal rates
  • No changes to the current step up basis regime at death
  • No limitations on like-kind exchanges
  • No required realization of gain on gifts or at death
  • No required realization of gain on assets held in trust, partnership or noncorporate entity after being held in trust for 90 years

Estate planning implications of proposals – what we know and what we don’t know:

  • Using Lifetime Estate Tax Exemption
  • Fund/Transaction with Grantor Trusts
  • Consider Trust Tax Planning for 2021 and Beyond

For all of these things we are discussing today, we are actively talking to our clients now so that they can begin thinking about their options and be prepared when it’s time to act. 

Ultimately, while some of the proposed changes may require large pivots to be made by advisors and clients, it’s worth remembering that this bill is not yet in its final form – there may still be weeks of negotiation before it is passed. 

That said, you need to be prepared to act quickly since many of the major proposals in the legislation are set to go into effect on January 1, 2022, and some will take effect as soon as the legislation is enacted… which may leave just weeks or even days to act if Congress proceeds!

But for people we aren’t working with today, when do they need to get started on this stuff? I mean, it’s hard to make good recommendations for someone if they don’t have a financial plan in place, and that alone takes some time.

We are going to talk about the proposals and potential tax planning opportunities, but there are a handful of tax minimization ideas that can seemingly be leveraged regardless of the bill.

Charitable Giving (bunching, DAF, $600 above the line deduction for cash donations if taking the standard deduction in 2021), 100% AGI limitations for cash gifts to public sharities extended to 2021)

  • QCDs can often provide a higher per dollar tax benefit because it directly reduces AGI
  • Retirement contributions (Deductible IRA, Simple, SEP, 401k)
  • 529 contributions up to State Income Tax Deduction, if you have state taxes)
  • Tax loss harvesting or gain harvesting
  • HSA

Resources

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Until next time, to long-term investing!

About the Podcast

Long term investing made simple. Most people enter the markets without understanding how to grow their wealth over the long term or clearly hit their financial goals. The Long Term Investor shows you how to proactively minimize taxes, hedge against rising inflation, and ride the waves of volatility with confidence. 

Hosted by the advisor, Chief Investment Officer of Plancorp, and author of “Making Money Simple,” Peter Lazaroff shares practical advice on how to make smart investment decisions your future self with thank you for. A go-to source for top media outlets like CNBC, the Wall Street Journal, and CNN Money, Peter unpacks the clear, strategic, and calculated approach he uses to decisively manage over 5.5 billion in investments for clients at Plancorp.

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