Biden’s capital gains tax hike will be retroactive to the ‘date of announcement’

By: Ajay Pal Singh
Ajay Pal Singh
Ajay worked at Tata Motors in project planning before discovering his passion for stocks. Today, he lives in Canada… read more.
on Jun 2, 2021
  • Biden administration released its Fiscal Year 2022 revenue proposals last week.
  • Capital gains tax hike will be retroactive to the 'date of announcement'
  • The budget proposal calls for a capital gains tax rate of 39.6% on the top earners.

U.S. President Joe Biden released his administration’s Fiscal Year 2022 revenue proposals last week. One of the sticking points in the proposal is the hike in capital gains tax. The budget proposal calls for a capital gains tax rate of 39.6% on the top earners and will be applied retroactively to the “date of announcement”.

Though the proposed budget needs to survive the negotiations in the Congress, it has set alarm bells ringing for investors and financial advisors.

How are financial advisors preparing clients?

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Ian Weinberg, a certified financial planner and CEO of Family Wealth and Pension Management in Woodbury, New York, is concerned about the tax hike and said the following:

“We’re concerned and our clients are concerned. We’re having active conversations about it.”

Weinberg in his comments to CNBC said that while the tax hike will make it costly for his wealthy clients to sell investments, there are few options available to reduce the burden.

Investors can wait to sell their investments and investors can use their qualified charity contributions to reduce the tax burden. Another option for employees is to increase their contributions to their retirement accounts and lower their gross income, which would be beneficial for the employees and the companies who can claim tax deductions.

Impact of sale of businesses

Some businesses may already be in the process of being sold or acquired. Such business sales can put the owners in the highest tax brackets overnight and thus, attract the 43.4% tax if we include the 3.8% Obamacare surcharge. 

“That poses more serious thought, because those are multimillion dollar sales,” Weinberg said.

He also advised investors to remain proactive and contact their financial or tax advisors earlier than at the last minute.

Eric Pierre, a Texas-based certified public accountant and owner at Pierre Accounting said: 

“We believe probably by September we should have a clearer picture. We’re going to do year-end planning early this year once we know what they will or will not allow.”

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