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CPAs and Tax Preparers Deserve Our Respect in 2021 More Than Ever

March 12, 2021/in Business/by KT Williams

CPAs and tax preparers deserve our respect more than ever.  They’ve faced COVID-19 with the rest of us and adjusted their practices to enhance public safety.  And they’ve done it with a tax code that is changing more than ever.  In just the last couple of weeks, long after tax returns started being filed, congress made changes that will affect many of those returns.  Countless other returns, already being prepared, were affected as well. In an environment like that, delays are inevitable.  Even now, a push to extend the tax filing deadline can be felt.  Frankly, an extended deadline will be much needed relief for these weary tax workers who are putting in long hours and missing precious time with family.  Clearly, they deserve our respect.  They also deserve our patience.   Thank you!

https://ktwilliamslaw.com/wp-content/uploads/2021/03/2021-Tax-Season-Respect-2.jpg 800 600 KT Williams https://ktwilliamslaw.com/wp-content/uploads/2015/12/williams-law-logo-rgb-640px.png KT Williams2021-03-12 13:37:402021-03-24 09:38:13CPAs and Tax Preparers Deserve Our Respect in 2021 More Than Ever

Are Major Tax Changes Ahead?

March 5, 2021/in Estate Planning/by KT Williams

Gazing Into The Crystal Ball . . . Tax Increases In Our Future

The new administration is off and running in 2021.  There are many changes coming our way, and higher taxes are among them.  I discuss some of the proposed changes in this article.  In the next article, I discuss options for handling the tax changes.

Cause and Effect

The US Government borrowed vast amounts of money to provide stimulus because of the COVID-19 pandemic. This borrowing occurred at the same time the government collected less in taxes.  Sooner rather than later, we will have to pay for the borrowing.  There has been a litany of proposals for new taxes and for tax increases.  So what can we expect?

Estate Taxes

Currently, estate taxes don’t affect estates unless they reach at least $11,700,000.  For estates that exceed this size, the tax on the excess reaches 40%.  Proposals include reducing the estate tax exemption from $11,700,000 so that many more estates will be taxed.  For example, one proposal would tax estates in excess of $3,500,000.  Proposals also include increasing the estate tax rate from 40% to 45%.  But that’s not all.  We may see new and increased capital gains taxes, too.

Capital Gains Taxes

Currently, long term capital gains are taxed at a 20% rate.  Tax proposals include increasing the capital gains tax rates for long-term and short-term capital gains.  Additionally, some proposals include a capital gains tax that will be paid at death.  This is not the estate tax as we traditional think of it.  It is a new tax, independent of the estate tax.  And it allows the government to capture tax revenue from gains experienced during the deceased’s lifetime.  The tax rate proposed for this new tax ranges from 28% to 36% depending on the decedent’s income.  This estate-based capital gains tax relates to the tax-basis proposals discussed next.

Stepped-Up Tax Basis and Elimination of 1031 Like-Kind Exchanges

Currently, an inherited asset comes with a tax basis that is equal to the asset’s fair market value.  This is referred to as its “stepped-up basis.”  Recent tax proposals include limiting or even eliminating the stepped-up basis following someone’s death.  If the step-up is eliminated, the inherited asset will come with the deceased’s tax basis which is typically what the deceased paid for the asset.

If the IRS doesn’t eliminate the basis step-up, but limits the basis step-up to $1 million per estate, the limit will be applied this way.  The basis of inherited assets will be increased to their fair market value until the total basis increase for assets in an estate reaches the $1 million limit.  When the limit is reached, additional inherited assets will not receive any further basis step-up even if the deceased’s basis was lower than the fair market value at their death.   And the heir will face a larger capital gains tax when they sell the inherited asset.

Another proposal eliminates the 1031 like-kind exchange. A 1031 like-kind exchange allows property owners to sell property without paying capital gains if they quickly replace it.  This process postpones capital gains taxes until the replacement property is sold without being replaced quickly.  Eliminating the 1031 like-kind exchange will result in more immediate taxation of capital gains and potentially slow down economic growth that occurs when payment of capital gains taxes can be postponed.

Higher income taxes

We’ll also see higher income taxes.  Proposals include higher income tax rates which means we’ll pay more taxes on our taxable income.  Also, proposals include reducing or eliminating income tax deductions which means more of our income will be taxed.

Uncharted Territory

We’re facing an uncertain landscape, but like all other uncertainties, we’ve got options.  We can ignore it and just stick our head in the sand.  Or we can embrace the uncertainty, confident that we’ll find a way to navigate it as we’ve navigated uncertainty and challenges in the past.  I choose the second option. As we look ahead, I’ll remain vigilant and keep you updated.  In my next article, I present options for handling some of the proposed tax changes.  Contact us if you have any questions about this evolving landscape.

https://ktwilliamslaw.com/wp-content/uploads/2021/03/2021_Tax_Changes_Update.jpg 454 800 KT Williams https://ktwilliamslaw.com/wp-content/uploads/2015/12/williams-law-logo-rgb-640px.png KT Williams2021-03-05 10:51:422021-03-05 13:38:08Are Major Tax Changes Ahead?

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