Legislation discussed, but not likely to pass:
- Repeal of stepped up basis
- Capital gains tax increase to 39.6% top bracket
Legislation possible to pass:
- Elimination or alleviation of the SALT deduction cap, especially driven by states with higher state and local tax
Legislation more likely to pass:
- Pass through section 199(a) business income deduction of 20% Æ limited to $500,000 on a joint return, $400,000 on an individual
- Backdoor Roth IRA eliminated entirely, not just for the “wealthy”
- RMD for aggregate IRA balances over $10M Æ distribute 50% of balance above $10M
- IRAs prohibited from holding private equity
- Reduce estate tax exemption from $11.7M to $5M-$6M (married filing jointly)
- Remove minority stock discount
- Corporate tax rate to increase from 21% to 25-26%
- New multinational corporate minimum tax rate of 16.5%, to curb the use of more tax-friendly jurisdictions
Questions for high income earners to consider, based on the above:
- Should you accelerate your gifting to heirs while the estate tax exemption is higher?
- Should you do back door Roth conversions sooner while you still can?
- Should you sell your business on an installment sale schedule to mitigate capital gains tax treatment?
- Should you stack your charitable contributions (for example, by using a donor-advised fund) into this year or the next year, and take the standard deduction for the other year?
- Married clients: should you consider a second to die contract to help offset the future cost of taxes on a business sale or IRA transfer?
- Should you look to gift from your IRA and replace the inheritance to heirs with a life policy?
Like we said, that’s a quick hit summary. If there is something here that we should discuss, let’s get to it!