tax planning

Taxes, Taxes and More Taxes

In light of the recent proposals by President Biden and Sens. Bernie Sanders and Chris Van Hollen, here’s what could be coming and some ideas on how to plan for it.

My phone is abuzz these days. With the prospect for higher income and estate taxes looming, more people want to talk about financial planning. The tax hikes may not all be just for the super-rich either.

Here’s a quick review of the tax proposals floating around the Beltway and some of the planning ideas we are reviewing with clients. For a deeper dive, join our in-house tax team for a webinar on May 11, 4pm EST, register here: Estate and Income Tax Proposals & Planning.

Estate Tax Proposals

Sen. Bernie Sanders of Vermont introduced an 18-page bill, the “For the 99.5% Act.” The act calls for lowering the federal estate tax exemption at death for individuals from the current $11.7 million ($23.4 million if married) to $3.5 million ($7 million if married) at death. Estates under the exemption amount are not subject to the federal estate tax at death.

Sen. Chris Van Hollen of Maryland proposed the Sensible Taxation and Equity Promotion (STEP) Act, which would tax capital gains above $1 million  at death as opposed to receiving a “step-up” in basis at death. This is like President Biden’s American Families Plan. Currently assets at death in non-retirement accounts – stocks, bonds and real estate – receive a step-up in basis, meaning the cost of original purchase is marked up to the date of death value. A step-up in basis can eliminate the capital gains tax for heirs who inherit and sell the property.

Under the proposals, $1 million of assets ($2 million for married couples) would continue to receive a step-up in basis, plus up to $500,000 for a personal residence (for joint filers, or $250,000 for single filers).

Income Tax Proposals

Big changes in the income tax code may be more likely given that is President Biden’s focus. Possible changes include a near doubling of the long-term capital gains rate from 20% to 39.6% for those with household income greater than $1 million. Currently assets sold after holding for one year are treated as long-term capital gains rather than ordinary income. The lower capital gains rate is usually advantageous to higher income earners.

President Biden also proposed raising the top income tax rate from 37% to 39.6%, reportedly affecting single filers with taxable income over $452,700 and married couples with taxable income over $509,300.

Estate Planning Ideas to Consider

It’s always hard to plan when dealing with a moving target. The proposals by President Biden, Sen. Sanders and Sen. Van Hollen are just that, proposals. Much can change. Having said that, we have a general framework to work with. Maximizing gifting now can make sense. Gifting appreciated assets to children and grandchildren shifts the capital gains to them, which is beneficial if they are in a lower tax bracket. Also, all the appreciation on the completed gift going forward is out of your taxable estate and in the kids’ estate. This is helpful if the estate exemption decreases. Keep in mind, Van Hollen’s proposal is retroactive to gifts in 2021.

Certain trusts can make sense now as well. Grantor Retained Annuity Trusts are used to transfer money to the next generation while limiting the use of your lifetime estate exemption. The proposals on the Hill limit the term of GRATs executed after enacted legislation.

Income Tax Planning Ideas to Consider

There are several income tax planning techniques that may prove helpful. For clients in a high tax bracket, I use an active tax loss harvesting strategy. We invest in a diversified series of exchange-traded funds (ETFs) across many equity sectors. We buy the ETFs at different time periods, creating various tax lots. If a specific tax lot loses money over the course of a year, which happens with stock market volatility, we sell that tax lot and book the loss. We then invest in a similar but substantially different secondary ETF to maintain exposure to that market slice and avoid the wash sale rule.

The goal is to harvest or book losses throughout the year. Direct indexing is a similar strategy. In any given tax year, a client can use the capital losses to offset a capital gain elsewhere. This reduces their taxable income and increases the basis of the new asset. A higher basis is helpful if the step-up in basis rule goes away.

Unused losses are carried forward on a client’s federal tax return for future years. All in all, I would say having an active loss harvesting strategy helps in these taxing times. Every little bit counts.  

For more information on tax planning, consider our 7-point Income Tax Review or email me. You can also join our upcoming webinar with Senior Tax Specialist James Rabasca on May 11 at 4pm EST: 2021 Estate and Income Tax Proposals and Planning. Register here:

About the Author

Michael Aloi, CFP®

CFP®, Summit Financial, LLC

Michael Aloi is a CERTIFIED FINANCIAL PLANNER™ Practitioner and Accredited Wealth Management Advisor℠ with Summit Financial, LLC.  With 17 years of experience, Michael specializes in working with executives, professionals and retirees. Since he joined Summit Financial, LLC, Michael has built a process that emphasizes the integration of various facets of financial planning. Supported by a team of in-house estate and income tax specialists, Michael offers his clients coordinated solutions to scattered problems.

Investment advisory and financial planning services are offered through Summit Financial, LLC, an SEC Registered Investment Adviser, 4 Campus Drive, Parsippany, NJ 07054. Tel. 973-285-3600 Fax. 973-285-3666. This material is for your information and guidance and is not intended as legal or tax advice. Clients should make all decisions regarding the tax and legal implications of their investments and plans after consulting with their independent tax or legal advisers. Individual investor portfolios must be constructed based on the individual’s financial resources, investment goals, risk tolerance, investment time horizon, tax situation and other relevant factors. The views and opinions expressed in this article are solely those of the author and should not be attributed to Summit Financial LLC. The Summit financial planning design team admitted attorneys and/or CPAs, who act exclusively in a non-representative capacity with respect to Summit’s clients. Neither they nor Summit provide tax or legal advice to clients.  Any tax statements contained herein were not intended or written to be used, and cannot be used, for the purpose of avoiding U.S. federal, state or local taxes.

Most Popular

Your Guide to Roth Conversions
Special Report
Tax Breaks

Your Guide to Roth Conversions

A Kiplinger Special Report
February 25, 2021
How to Calculate the Break-Even Age for Taking Social Security
social security

How to Calculate the Break-Even Age for Taking Social Security

When it comes to maximizing your Social Security benefits, there are many elements to consider. One factor that can be especially enlightening is your…
August 30, 2021
Spend Without Worry in Retirement
Financial Planning

Spend Without Worry in Retirement

Fears of running out of money prevent many retirees from tapping the nest egg they’ve worked a lifetime to save. With these strategies, you can genera…
August 30, 2021


Investment Strategies for the 4 Stages of the Economic Cycle

Investment Strategies for the 4 Stages of the Economic Cycle

The U.S. economy is cyclical in nature, surging ahead and pulling back in waves over time. Investors’ portfolios need to change with the rise and the …
September 19, 2021
How Exactly Do You Stress-Test Your Financial Plan?
retirement planning

How Exactly Do You Stress-Test Your Financial Plan?

Some tasks are not good for DIYers, and stress-testing your portfolio is probably one of them. Because individuals don’t have access to the same tools…
September 18, 2021
5 Charitable Surprises about High-Net-Worth Families

5 Charitable Surprises about High-Net-Worth Families

They might be out of the spotlight, but smaller family foundations are stepping up their giving in this time of need.
September 17, 2021
5 Key Points to Consider Before You Claim Social Security
social security

5 Key Points to Consider Before You Claim Social Security

The big decision every retiree has to make is when to start taking their Social Security benefits. Here are five things to think about as you weigh yo…
September 16, 2021