In light of the increased government spending in the past couple of years, higher income and estate taxes may be on the way. The rising debt is at a staggering all time high and projected to reach above $50 trillion by 2025.
Experts are anticipating a return to more historical income and estate tax rates attached to higher income and levels of net worth. In 2022, There are discussions of Income tax rates over 40% and estate tax rates over 50% .
This means that those in the higher income brackets will need to take advantage of Tax strategies NOW! There are essentially FOUR tax strategies to take advantage of in 2021, or risk losing in 2022 and beyond.
FOUR TAX STRATEGIES TO TAKE ADVANTAGE OF 2021 TAX LAW
1. Potential Rising Income Taxes:
Life Insurance: a life insurance policy can provide for your heirs and also provide supplemental tax-free income via policy loans. This should be started ASAP, as it takes time for cash value to build up inside the policy.
If you are over 59 1/2 use qualified account distributions to “fill up” your 2021 tax bracket or one bracket higher, since 2022 may potentially bring a higher tax rate.
2. Possible Rising Capital Gains Tax Rate:
Consider selling off appreciated assets at the current 15%-20% long-term capital gains (LTCG) tax rate since future rates may increase especially in the higher income levels.
3. Potential Reduction in Lifetime Gifting Exemption:
Take advantage of the 2021 lifetime gift exemption ($11.7 million per taxpayer) as it may be reduced in 2022.
Take advantage of the annual gift tax exemption of $15,000 by gifting to family members
4. Possible Reduction in Lifetime Estate Exemption and Increased Estate Tax Rates:
Greatly reduced Estate tax exemptions may be coming, therefore consider selling off assets and converting those funds into tax-free death benefit so heirs don’t need to sell assets in the future.
Life insurance policies should be owned in Family LLC to reduce the death benefit from the estate.
And, if estate taxes happen to drop in the future, that death benefit becomes additional inheritance.
Call Wealth Management Accounting at 260-624-0490 to discuss which strategies may be a good fit for you.