How Could the Capital Gains Tax Affect You?

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The Story:

Do these proposed changes really only affect high-income earners and the wealthy? On today’s episode, we look at recent changes and proposals that could impact your finances.

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The Show:

President Biden is approaching 100 days in office and is about to hold his first joint session in Congress. One of the things he’ll be talking about is the capital gains tax proposal. What do you need to know about this?

When you hear things like “over a million in income” you might think, “well, that doesn’t really affect me.” But does it? The capital gains tax is a tax that differs from ordinary income tax. They are parallel taxes. The income you get from things like your wages, pension, or IRA income is ordinary income. The capital gains tax is a special tax on assets held more than one year and there are two tax brackets. These include things like real estate, stocks, mutual funds, farm, or a business.

The unintended consequences may be that the tax on the high-income earners trickles down to everyone if they are spending less. There could be a reduction in stock values, job losses, and a massive relocation of wealthy people from high tax states to other tax friendly states. Don says, what people fail to realize is that in many states, the top 1 percent of taxpayers pay almost 50 percent of all the income taxes.

What is happening with the step-up in basis? Don shares an example of how the step-up in basis works now and in contract how it could look should this proposal pass.

Another change happens with publication 590-B. Following the SECURE Act which eliminated the stretch IRA, we now need to keep in mind that your RMDs will have to come out over the 10-year period. Steep penalties will occur if you don’t take out your RMDs properly. Have a conversation with your advisor to ensure your financial plan is taking all these new changes and proposals into consideration.

Listen to the entire episode or click on the timestamps below to skip to a particular section.

[0:30] – Spring brings allergies and storms.

[2:35] – Don’t forget about this year’s tax deadline.

[3:53] – Biden is coming up on 100 days.

[5:22] – What is the capital gains tax?

[8:24] – How might this affect everyone?

[15:27] – What about the step-up in basis?

[21:06] – What is publication 590-B?


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About Don:

Donald W. Cash – CPA, CFP® is an independent advisor. Don began his career in 1985 as an accountant after graduating Rutgers University. In 1990 he entered the field of Estate Planning with a concentration in long term care planning. Don has been advising clients in the baby boomer and retirement market for 20 years. He has helped over 1,000 families with their planning needs. He advocates a holistic approach to Estate and Financial Planning as has relationships with other professionals including Attorneys, CPA’s, Mortgage Specialists, Insurance Specialists and Asset Managers. Don is married to Cathy and have 4 children, Carly, DJ, Nick and Tori. They live in Freehold, NJ.

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