Planning for Every Outcome: Prepare For Tax Changes Before You Run Out Of Options

At Vance Wealth, one of our most important responsibilities is not simply preparing for life’s uncertainties, but help anticipating them before they occur. This year, that’s especially important when it comes to tax planning.

The Biden Administration has proposed changes to our tax policies that, if enacted by Congress, would likely have a significant impact on tax bills, especially if you don’t adjust your financial plan ahead of these changes.

“You can’t achieve thoughtful, effective tax planning unless you’re proactive,” explained John Vance, President of Vance Wealth in Santa Clarita “We recommend reviewing your tax plan annually because it’s not something you can set and forget.”

This year it’s crucial because right now, the outcome of these proposed changes is still unknown, which means families need to plan for all potential outcomes to be fully prepared to make the best decisions when the time comes.

“It’s critically important to be aware of these changes and how they can affect you,” John explained. “Depending on your income bracket, they could have a significant impact. Plus, there could be some big changes for business owners, real estate investors, and more.”

Regardless of your financial position, this is not the year to rely on conventional wisdom and years-old plans.

“When tax codes change, your thought-process around effective decisions has to change, too,” John reiterated. “You always need to be asking: How will this affect my taxes now, years from now, and throughout my lifetime?”


Biden’s Proposed Tax Policies 

In his American Families Plan, President Joe Biden proposes a sweeping set of changes to corporate, individual, capital gains, estate, social security taxes, and more.

“From my perspective, the Biden Administration proposed some pretty extreme changes,” John explained. “Now, I’m not an alarmist, which is why I believe they went to the extreme so that they can negotiate back to some kind of middle-ground. They started big so that they could negotiate big. That being said, these changes could still be passed by Congress.”

Biden’s proposed changes include an increase in corporate taxes from 21% to 28% and an increase in individual taxes from 37% to 39.6% for the highest income bracket. These changes will likely have a modest impact on the economy.

However, some of the more significant changes include a capital gains tax increase that would nearly double (23.8% to 43.4%) the tax rate for higher earners and could potentially accelerate selling in the real estate and stock markets.

There are also several proposed changes that affect the transfer of properties and estates. For example, Biden’s proposal would eliminate the step-up in basis provision, allowing beneficiaries to sell inherited property without paying capital gains taxes on the property’s appreciation.

The 1031 exchange currently allows real estate investors to exchange from one property to another without tax incurring. However, under the proposed changes, that deferral would be limited to gains of up to $500,000 for single taxpayers and $1 million for married taxpayers.

Additionally, current law allows individuals to transfer assets up to $11.7 million without facing the federal estate tax; Biden’s proposal would lower that threshold to $3.5 million and increase the tax rate from 40% to 45% for estates that cross that threshold.

Regarding social security, employers and employees are currently taxed up to $142,800 of their income. Biden’s proposal would add another 6.2% (plus another 6.2% if they are a business owner equaling 12.4%) tax onto taxpayers who earn more than $400,000 a year.

“Biden is also proposing to increase tax enforcement and IRS support,” John explained. “So it’s more important than ever to make sure you understand the tax laws – and how to maintain appropriate document.”


We Can Help 

At Vance Wealth, we empower our clients with a clear understanding and deliver advice to help them feel confident and optimistic for their financial future.

It’s what we do every day.

It means transforming the complex to simple, helping provide clarity at every opportunity, and paying our experience forward when it’s needed most.

“We work with your CPA or tax professional to help ensure that we’re serving the big picture and digging into the details with every decision,” John explained. “As the natural conduit between you and your tax preparer, we can help ensure that your tax plan is successful this year – and for a lifetime.”

We offer a complimentary consultation if you’re interested in learning how these proposed tax changes could affect you.

Together, we can help you achieve more. 

Disclosures: Vance Wealth, Inc. (“Vance Wealth”) is a registered investment advisor. Advisory services are only offered to clients or prospective clients where Vance Wealth and its representatives are properly licensed or exempt from licensure. The information provided is for educational and informational purposes only and does not constitute advice. Vance Wealth does not provide tax or legal advice. You should contact your tax advisor and/or attorney before making any decisions with tax or legal implications.