Categories: Family Office, Financial NewsPublished On: August 16th, 2021Comments Off on Market Update – 8/13/202120.2 min read
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Biden’s infrastructure bill focuses on fighting poverty and climate change funded by tax increases for the rich and businesses.
A currently known possible tax reform includes an increase in corporate income tax rate from 21% to 28%. In addition, the highest individual marginal income tax rate may increase from 37% to 39.6%. For families earning more than one million U.S. dollars, long-term capital gains tax rate may increase from 20% to 39.6%.
Many people don’t consider themselves rich, so it does not matter to them whether the tax reform is passed or not. However, if all the tax reforms are passed in the future, it is very likely that a million dollars will be earned when an investment property is sold (especially in states like California where housing prices are high), and the highest marginal tax rate of 39.6% will be applied. Coupled with the 3.8% Net Investment Income Tax, the total combined Federal and California state tax may amount to almost 60%.
No one can accurately predict the exact content of the impending tax reform—but in general, the US fiscal deficit will lead to overall tax rate increases. Investors need to examine whether their portfolios and income are excessively concentrated on specific financial assets. If so, diversification should be considered to avoid the impact of legal changes.
In addition to pursing investment returns, more attention should be given to tax planning to pursue higher net after-tax returns. Investors should prioritize the use of tax-free or tax-deferred accounts. In addition to the retirement accounts (IRA, 401k, etc.), high net-worth families can also consider Private Placement Life Insurance (PPLI) that puts stock trading in an insurance policy to achieve tax-free status. Since everyone’s situation is different, it is best to have professionals provide targeted advice after analyzing your financial profile.
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