Wealthy Americans are scrambling to find the best way to minimize the hit from tax hikes in the Democrats’ reconciliation package moving through Congress.
Making it more difficult is the uncertainty surrounding the timing of certain hikes, especially the increase of the capital gains rate that could hit the wealthiest the hardest.
“That's giving clients a lot of heartburn,” Ryan Losi, a certified public accountant with Piascik, told Yahoo Money.
Earlier this month, the House Ways and Means Committee unveiled its plan proposing to increase the top long-term capital gains and qualified dividends tax rate to 25% from 20%. Additionally, the plan includes reverting the top individual income tax rate back to 39.6% and reducing the estate and gift tax exemption to $5.85 million from $11.7 million.
Taxpayers making above $1 million would see an 11% tax increase to their federal taxes under the House Ways and Means Committee plan, according to an estimate by the Joint Committee on taxation.
Most changes likely will get enacted next year, except the capital gains tax, which could be retroactive to September 13 of this year if the Senate keeps the provisions drafted by the House.
“We have been for months telling clients to consider their capital gains provision, whether it's selling of capital assets or investments or selling part of a business,” Lewis Taub, a certified public accountant and New York director of tax services at Berkowitz Pollack Brant Advisors, told Yahoo Money. “I've been working with clients on this for months, attempting to accelerate the gains.”
‘Take the freakin' cash’
Many wealthy individuals have been selling stock investments or businesses to escape the anticipated increase in the capital gains rate. Doing so may mean significant savings for wealthy individuals.
“It was pretty clear that capital gains rates would go up dramatically and I think that's capitulated a lot of sales or businesses,” Losi said. “I’ve had more activity in the past two years than I've had since maybe 2005-2006.”
The increase could have been worse. Biden’s initial plan called for raising the capital gains rate to 39.6% — versus the 25% that’s in the current proposal — giving the wealthy “some level of relief,” according to Taub.
While some investors may hold off on selling assets because they expect bigger gains down the road to offset the increase in the capital gains rate, others may not be able to wait.
“For the ones that want certainty, don't want to take the risk and are at the end of [their] working years... I am telling them to take the freakin’ cash,” Losi said.