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2 Strategies to Keep Your Cash With Biden’s New Tax Rates

  • New tax legislation to fund the infrastructure plan has sent a wave of concern for asset management
  • Top bracket taxpayers are seeking guidance before Biden’s proposed tax rates kick in

Biden is set to boost the capital gains tax rate for the top bracket of taxpayers from 23.8% (20% capital gains tax, plus 3.8% net investment income tax) to 43.4% (39.6% capital gains tax, plus 3.8% net investment income tax). Additionally, top-bracket taxpayers could face another potential increase coming from state and local capital gains taxes, which would hike the capital gains tax rate by more than 20%.

Biden is also proposing to remove the step-up in basis on death which would increase tax liability for beneficiaries who, upon sale of inherited assets, would pay a potentially significant tax on the unrealized gain. The current step-up in basis would remain in place for gains less than $1MM.

With these major increases in tax liability coming down the line, America’s top bracket taxpayers need to have a plan in place for asset management.

1. Sell Off Your Assets Now 

Selling off your assets now would give you the benefit of the current low tax rates. Realizing gains with this method would generate a tax liability now, and the move would prevent your capital gains from being taxed at Biden’s proposed increased rate. Plus, you could buy back after 30 days without the threat of the wash rule, which only applies to losses. However, rumors are buzzing that Biden plans to make the new rates retroactive to April 2021.

By selling and rebuying your assets, you can manually step up the basis of these assets yourself, which will benefit you, or your heirs, in the long run.

2. Defer Compensation 

A not-so-obvious strategy to avoid the 43.4% potential capital gains rate is to decrease income to under $1 million by switching to a deferred compensation plan. Deferred compensation spreads income over several years to not surpass $1 million annually, thereby allowing you to swing in and out of the top bracket as appropriate.

Whether you’re looking to hold assets or sell and buy back, you need to make a money savings plan— so call your DSJ trusted financial advisor at 516-541-6549 to learn what strategy will best benefit you. And don’t forget to visit our website to stay up to date!

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