You may be counting on the step-up, Roth conversions and donor-advised funds. But politicians could snatch those goodies away.
You may be counting on the step-up, Roth conversions and donor-advised funds. But politicians could snatch these goodies away.Take a close look at the tax plan in the budget proposal that came from the White House last week. It probably won’t be enacted, at least not in its present form. But it is a window into the wish list of tax reformers. They aim to kill off a long list of tax avoidance strategies as soon as they get the votes.
Whether Biden can get any of this through a closely divided Senate is an open question. It hangs on the votes of two on-the-fence Democrats, Joe Manchin of West Virginia and Kyrsten Sinema of Arizona. Manchin appears willing to sign off on some tax hikes but not the taxation of paper gains. Sinema is hostile to tax increases except at the upper reaches of the income spectrum .
Neither is an alarmist. They put fairly low odds on enactment this year of most loophole closers. But they agree that investors need to be sensitive to the long-term political pressure for eliminating tax maneuvers used by the well-off. An early version of the Build Back Better fill would have limited the step-up to $1 million. That ceiling may be too low to get through Congress, says Rockefeller Capital’s Tim Laffey. It would mean that heirs to a modest IRA and a suburban home could get a surprise income-tax bill.
The Biden budget wants the recapture taxed as ordinary income . This kind of reform could definitely happen, either now or down the road. CBIZ’s Bill Smith calls this a “medium” risk.Grantor retained annuity trusts keep many a lawyer busy. You deposit into the trust an asset with appreciation potential, then take back an annuity of a certain dollar amount. When the annuity is over with, the asset goes to your descendants.
Evidently the legislators were inspired not so much by social justice as by their hunger for accelerated tax payments. I conclude that your right to convert is pretty safe. You can fund your contribution with appreciated property, taking advantage of another tax technique. Say you put $10,000 into Tesla or bitcoin and the stake is now worth $80,000. You donate it to the fund. If you’ve held the asset for more than a year, your charitable deduction is $80,000 but the $70,000 of gain is never taxed.
Risk that this giving option will be taken away: low. The $100,000 annual limit means that the tax dodge is meaningless to billionaires. Charities would suffer if Congress changed the law.
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