The September 13^th tax proposal included numerous tax changes that could directly impact many of our clients.  The Build Back Better framework, released by the White House last week on Thursday, October 28^th, removed many of the initial provisions including the attack on backdoor and mega-backdoor Roth conversions.

The tax proposal released last week would include two key tax changes:

1. Net Investment Income Tax (NIIT) would apply to S Corp profits if the taxpayer’s Modified Adjusted Gross Income (MAGI) exceeds $400,000 for a single filer ($500,000 for married filing jointly.)  The current NIIT of 3.8% does not currently apply to S Corp earnings but would apply if the bill passes.
2. The proposed “Surtax” threshold has now been increased to taxpayers with MAGI over $10 million.  A surtax of 5% would apply to income over $10 million and an additional 3% (total of 8% = 5% + 3%) would apply to MAGI over $25 million. 

Increased capital gains and ordinary income tax rates, targeting of Roth accounts, a reduced estate tax exemption, extension of the child tax credit past 2022, and strict limitations on grantor trusts were all absent from the released draft.

However, just as Roth accounts were taking a sigh of relief… as of November 4^th the latest tax proposal being passed around has reinstated scrutiny on retirement accounts. This week’s latest round of proposed tax legislation introduces a few more key changes:

3. Retirement savers with large account balances could face additional scrutiny and required minimum distributions. IRA accounts will be prohibited from holding any securities if the issuer requires a certain minimum level of assets or income. Individuals with combined account balances more than $10 million will face required minimum distributions of 50% of the amount that exceeds $10 million. This will apply to taxpayers above certain income thresholds ($400k individual, $450k for a joint return.)

4. Beginning after 2028 further contributions to Roth or traditional IRAs will be banned for anyone with account balances exceeding $10 million who also has income above $400k ($450 for a joint return.)

5. Back door Roth contributions would be disallowed starting in 2022 regardless of income level. The back door may officially be closed at the end of this year.

6. Limits on Roth conversions are back starting after 2031.  This limitation would impact taxpayers with income over $400k ($450k for a joint return.)

Based on the back and forth over the past week, it is hard to say what will actually make the final bill. The roller coaster ride continues, but we will make sure to stay on top of the proposed changes as the conversations continue.

The opinions expressed in this commentary should not be considered as fact. All opinions expressed are as of the published date and are subject to change. Information contained herein is not and should not be construed as an offer, solicitation, or recommendation to buy or sell securities. Investments in securities involves risk, will fluctuate in price, and may result in losses. The information has been obtained from sources we believe to be reliable; however no guarantee is made or implied with respect to its accuracy, timeliness, or completeness.   It is suggested that you consult your financial professional, attorney, or tax advisor with regard to your individual situation.

Acumen Wealth Advisors, LLC® is a Registered Investment Adviser. Advisory services are only offered to clients or prospective clients where Acumen Wealth Advisors, LLC® and its representatives are properly licensed or exempt from licensure. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. No advice may be rendered by Acumen Wealth Advisors, LLC® unless a client service agreement is in place.

Debate continues in Washington over the proposed tax changes contained in the Build Back Better Act and the Bipartisan Infrastructure Bill.  These tax proposals would raise the top marginal income tax rate from 37% to 39.6%.  The increased top marginal rate, combined with the expanded 3.8% net investment income tax, would apply to active business income.  In addition, a new 3% surcharge for high-income taxpayers with adjusted gross income above $2.5 million ($5 million for married couples) creates a maximum federal tax rate of 46.4%.  The maximum capital gains tax rate would increase from 20% to 25%, but earlier the proposed rate was as high as 39.6%.  While both proposals contain numerous provisions affecting both individuals and businesses, one key area under scrutiny in both proposals are Roth IRAs.

You may have seen news articles pointing out Peter Thiel’s $5 billion Roth IRA was originally funded with $2,000 worth of his initial PayPal shares.  Coincidence or not, restrictions on Roth IRAs are very likely to be implemented under the current tax proposals.  Wealthy savers won’t be allowed to contribute to Roth or traditional IRAs if the combined value of their defined contribution plans exceed $10 million in the prior year.  This would apply to single individuals earning more than $400,000 or married joint filers earning more than $450,000.  Furthermore, “back-door” Roth conversions of after-tax traditional IRA or 401(k) will be off limits for those earning more than $400,000 per year.  Historically through “Mega-backdoor” Roth conversions, wage earners could contribute up to $58,000 in after-tax money to a 401(k), roll it into an IRA, and then make a Roth conversion.  This process would be banned for everyone.  “Backdoor” and “mega-backdoor” limitations would be banned starting in January 2022.  All Roth conversions would be banned for high-income earners starting in 2032.

If the combined balance of an investor’s IRA, Roth IRA, 401(k) and other defined benefit plans exceeds $10 million, they would be required to distribute the excess balances.  The new required minimum distribution (RMD) would be 50% of any amount over $10 million.  An RMD of 100% would apply to any balance beyond $20 million.  Mr. Thiel could be facing a rather large RMD with a 40% tax rate.

It is important to note the estate tax exemption is proposed to return to the pre-Tax Cuts and Jobs Act limit of $5 million in 2022.  This exemption creates a significant estate tax issue for some who were not previously exposed to estate taxes under the higher estate tax exemption.  With more estates being affected by estate tax, it is possible to avoid an estate tax trap using Roth accounts.  Traditional IRAs are subject to estate tax and essentially taxed on an embedded income tax liability.  To help illustrate this scenario, assume a $1 million traditional IRA is within an estate subject to estate tax.  The $1 million traditional IRA would be subject to a 40% estate tax.  However, when the $1 million is distributed to the beneficiaries, the distribution would be subject to ordinary income tax, potentially at 39.6%.  The net cash after estate tax and ordinary income tax on $1,000,000 would only leave $204,000 remaining.  If this $1 million traditional IRA was converted to a Roth IRA in 2021 and we assume the highest tax rate of 37%, the resulting Roth would be subject to estate tax, but not the ordinary income tax on distribution.  While it’s never fun to pay a 37% tax rate, this strategy could generate $174,000 in tax savings as shown here:

Example Savings

Traditional IRA	$1,000,000	Roth IRA	$1,000,000
Cash outside of IRA	$370,000	Cash outside of IRA (After Tax on conversion)	$0
Estate Tax	($548,000)		($400,000)
Ordinary Income tax on distribution	($396,000)		$0
Net Cash	$426,000		$600,000

Savings

$174,000

There may be an extra incentive for 2021 Roth conversions even at higher ordinary income tax rates, especially for those with estate tax considerations.  Keep in mind the tax proposals are still being negotiated.  However, Roth conversions and the estate tax exemption are both known points of scrutiny.

This is for general information only and is not intended to provide specific investment advice or recommendations for any individual. The opinions expressed in this commentary should not be considered as fact. All opinions expressed are as of the published date and are subject to change. The information has been obtained from sources we believe to be reliable; however no guarantee is made or implied with respect to its accuracy, timeliness, or completeness.   It is suggested that you consult your financial professional, attorney, or tax advisor with regard to your individual situation.

Acumen Wealth Advisors, LLC® is a Registered Investment Adviser. Advisory services are only offered to clients or prospective clients where Acumen Wealth Advisors, LLC® and its representatives are properly licensed or exempt from licensure. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. No advice may be rendered by Acumen Wealth Advisors, LLC® unless a client service agreement is in place.

Last week the House Ways and Means Committee released a draft of Biden’s proposed tax legislation.  Acumen’s team is diligently staying focused as changes occur to advise our clients.  None of these changes have yet to become law, but we anticipate major changes on the horizon.  We would like to share a few key highlights from the potential legislation: 

Individual Tax

• The top individual income tax bracket would be increased to 39.6%, creating a combined top tax rate of 46.4% (39.6% top individual tax bracket, plus 3.8% net investment income tax, plus 3% surtax).
•  A new 3% surtax on individuals with modified adjusted gross income in excess of $5,000,000 ($2,500,000 for married taxpayers filing separately).  The 3% surtax would be assessed for trusts and estates with income in excess of $100,000.
• The top capital gains rate would be increased to 25%, creating an effective rate of 31.8% (25% capital gains rate, plus 3.8% net investment income tax, plus 3% surtax).  The proposed legislative text currently provides for any transactions completed on or before September 13, 2021, or subject to a binding written contract before September 13, 2021 (even if the transaction closes in the current tax year after September 13), are subject to the current 20% statutory rate.  Capital gains recognized after the current tax year, regardless of the contract date, are proposed to be subject to the new 25% statutory rate.
• Wash sale rules would now affect cryptocurrency and other digital assets.  Historically, cryptocurrency has not been subject to wash sale rules that apply to stock sales. 

Retirement Planning

• Further contributions to Roth or traditional IRAs would be prohibited if the total value exceeds $10,000,000 as of the end of the prior taxable year. 
• New required minimum distributions would be required on high income taxpayers with high account balances similar to the contribution limits for accounts exceeding $10,000,000.
• Eliminates backdoor Roth IRA strategies for taxpayers with income above $450,000 (married filing jointly).  The bill also prohibits all employee after-tax contributions in qualified plans and prohibits after-tax IRA contributions from being converted to Roth regardless of income level.
• Roth conversions are eliminated for earners over the $450,000 (married filing jointly), but not effective until 2031.
• IRA investments requiring accredited investor status would be disallowed with a two-year transition period for IRAs already holding these investments. 

Business Tax

• Section 199A Qualified Business Income Deduction would be limited once certain income thresholds are met.  (The thresholds are $500,000 married filing jointly, $400,000 single and head of household, $250,000 married filing separately, and $10,000 trusts and estates.)
• The current corporate income tax rate of 21% would be replaced with a graduated rate structure of 18% on taxable income up to $400,000, 21% on taxable income between $400,000 and $5,000,000, and 26.5% on taxable income above $5,000,000.  Incorporated businesses, such as law firms, accounting firms, and medical practices taxed as personal service corporations, would be subject to a flat corporate income tax rate of 26.5%.
• S-Corporation distributions to be subject to the 3.8% net investment income tax for taxpayers with income higher than $400,000 for individual filers or $500,000 for married filing jointly. 

Estate Tax

• The estate and gift tax lifetime exemption would be cut in half from the current inflation-adjusted $10,000,000 per person ($11,700,000 in 2021) to an inflation-adjusted $5,000,000 ($5,850,000 based on the 2021 inflation rate).  This reduction would apply to estates of decedents dying and gifts made after December 31, 2021.
• Grantor trusts created after the enactment of the legislation would now be included in the estate of the grantor.  All distributions from grantor trusts created after the enactment of the legislation would be deemed as gifts to the beneficiaries. 
• The legislation also looks to end a commonly used estate reduction technique of selling an asset to a defective grantor trust by taxing such sales the same way as the normal sale of assets to a third party.  This provision applies only to trusts executed after the enactment of the legislation and subsequent transfers to grantor trusts.

The opinions expressed in this commentary should not be considered as fact. All opinions expressed are as of the published date and are subject to change. Information contained herein is not and should not be construed as an offer, solicitation, or recommendation to buy or sell securities. Investments in securities involves risk, would fluctuate in price, and may result in losses. The information has been obtained from sources we believe to be reliable; however, no guarantee is made or implied with respect to its accuracy, timeliness, or completeness.   It is suggested that you consult your financial professional, attorney, or tax advisor with regard to your individual situation.

Acumen Wealth Advisors, LLC® is a Registered Investment Adviser. Advisory services are only offered to clients or prospective clients where Acumen Wealth Advisors, LLC® and its representatives are properly licensed or exempt from licensure. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. No advice may be rendered by Acumen Wealth Advisors, LLC® unless a client service agreement is in place.

This checklist can help guide your conversations regarding the highlights of President Biden’s tax plan. Please take a look at this and the companion piece “As A High-Income Taxpayer, How Might President Biden’s Tax Plan Affect Me?” and consider how these resources may be of use to you. You may find this checklist on Acumen’s Resources page: How Might President Biden’s Tax Plan Affect Me?

If you’d like to discuss your personal situation and learn more about how Acumen can help you Invest Intentionally®, please contact us.

This report is provided as a courtesy for informational purposes only. The information has been obtained from sources we believe to be reliable; however, no guarantee is made or implied with respect to its accuracy, timeliness, or completeness. This information is hypothetical in nature as no tax plan has been finalized as of publication. The final tax plan could vary.

Report Not a Solicitation
Do not act or rely upon the information in this publication without seeking the services of competent and professional legal, tax, or account counsel.

Report Does Not Provide Legal, Tax, or Accounting Advice
This report does not provide legal, tax, or accounting advice. Before making decisions with legal, tax, or accounting ramifications, you should consult appropriate professionals for advice
specific to your situation.

For More Information
You should seek the services of your legal and/or tax advisors when making financial decisions. It is also recommended that you visit the IRS website at www.irs.gov for additional information.

Acumen Wealth Advisors, LLC® is a Registered Investment Advisor. Advisory service are only offered to clients or prospective clients where Acumen Wealth Advisors, LLC® and its representatives are properly licenses or exempt from licensure. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. No advice may
be rendered by Acumen Wealth Advisors, LLC® unless a client service agreement is in place.

President Biden’s administration has outlined a tax policy built upon the agenda introduced during his campaign. Biden’s tax plan focuses on raising taxes on corporations and affluent households, while increasing credits for moderate- to lower-income households. With Democratic control of Congress, changes outlined in President Biden’s tax plan have an increased possibility of becoming a reality. At what time, in what form, and to what extent remains to be seen; however, another round of tax law changes is likely on the horizon.

Having adapted to frequent, and sometimes major, legislative changes in recent years (namely the TCJA, the SECURE Act, the CARES Act, and most recently, the American Rescue Plan Act), you may be understandably concerned about what changes could be imminent. High-income households, in particular, have been targeted for tax increases under Biden’s tax plan.  By familiarizing yourself with President Biden’s tax plan now, you can be positioned to take action and seize planning opportunities when changes are implemented.

Take a look at this checklist to help guide you through conversations regarding the highlights of President Biden’s tax plan, along with the companion piece “How Might President Biden’s Tax Plan Affect Me?”.

You may find this flowchart on Acumen’s Resources page: As a High-Income Taxpayer, How Might President Biden’s Tax Plan Affect Me?

If you’d like to discuss your personal situation and learn more about how Acumen can help you Invest Intentionally®, please contact us.

This report is provided as a courtesy for informational purposes only. The information has been obtained from sources we believe to be reliable; however, no guarantee is made or implied with respect to its accuracy, timeliness, or completeness. This information is hypothetical in nature as no tax plan has been finalized as of publication. The final tax plan could vary.

Report Not a Solicitation
Do not act or rely upon the information in this publication without seeking the services of competent and professional legal, tax, or account counsel.

Report Does Not Provide Legal, Tax, or Accounting Advice
This report does not provide legal, tax, or accounting advice. Before making decisions with legal, tax, or accounting ramifications, you should consult appropriate professionals for advice specific to your situation.

For More Information
You should seek the services of your legal and/or tax advisors when making financial decisions. It is also recommended that you visit the IRS website at www.irs.gov for additional information.

Acumen Wealth Advisors, LLC® is a Registered Investment Advisor. Advisory service are only offered to clients or prospective clients where Acumen Wealth Advisors, LLC® and its representatives are properly licenses or exempt from licensure. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. No advice may be rendered by Acumen Wealth Advisors, LLC® unless a client service agreement is in place.

Income tax planning is critical to solid financial planning. Navigating our complicated federal pay-as-you go income tax system can be difficult. Adding further complexity, you must understand and adapt to changes in tax laws and in your personal circumstances. In each tax year, it is important to ensure you are properly paying your federal income tax liability in order to avoid penalties. Frequently, you may need to make estimated payments to avoid penalties for late payments and/or underpayments.

We have a flowchart to help you guide through an estimated payments analysis. The decision points identify factors that may trigger a need to make or increase estimated payments, including:

• Self-employment, rental, and investment income
• Unexpected increases in income
• Multiple sources of income
• Underwithholding

You may find this flowchart on Acumen’s Resources page: Do I Need to Start Making Estimated Federal Income Tax Payments for 2021?

If you’d like to discuss your personal situation and learn more about how Acumen can help you Invest Intentionally®, please contact us.

This report is provided as a courtesy for informational purposes only. The information has been obtained from sources we believe to be reliable; however, no guarantee is made or implied with respect to its accuracy, timeliness, or completeness.

Report Not a Solicitation
Do not act or rely upon the information in this publication without seeking the services of competent and professional legal, tax, or account counsel.

Report Does Not Provide Legal, Tax, or Accounting Advice
This report does not provide legal, tax, or accounting advice. Before making decisions with legal, tax, or accounting ramifications, you should consult appropriate professionals for advice specific to your situation.

For More Information
You should seek the services of your legal and/or tax advisors when making financial decisions. It is also recommended that you visit the IRS website at www.irs.gov for additional information.

Acumen Wealth Advisors, LLC® is a Registered Investment Advisor. Advisory service are only offered to clients or prospective clients where Acumen Wealth Advisors, LLC® and its representatives are properly licenses or exempt from licensure. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. No advice may be rendered by Acumen Wealth Advisors, LLC® unless a client service agreement is in place.

Retirement is a whole new phase of life. You’ll experience many new things, and you’ll leave others behind – but what you won’t avoid is taxes. If you’ve followed the advice of retirement plan consultants, you’re probably saving in tax-advantaged retirement accounts. These types of accounts defer taxes until withdrawal, and you’ll probably withdraw funds in retirement. Also, you may have to pay taxes on other types of income – Social Security, pension payments, or salary from a part-time job. With that in mind, it makes sense for you to develop a retirement income strategy.

Consider when to start taking Social Security. The longer you wait to begin your benefits (up to age 70), the greater your benefits will be. Remember, though, that currently up to 85 percent of your Social Security income is considered taxable if
your income is over $34,000 each year.

Be cognizant of what tax bracket you fall into. You may be in a lower tax bracket in retirement, so you’ll want to monitor your income levels (Social Security, pensions, annuity payments) and any withdrawals to make sure you don’t take out so much that you get bumped into a higher bracket.

Think about your withdrawal sequence. Generally speaking, you should take withdrawals in the following order:

• Start with your required minimum distributions (RMDs) from retirement accounts. You’re required to take these after all.
• Since you’re paying taxes on taxable accounts, make this the second fund you withdraw from.
• Withdraw from tax-deferred retirement accounts like IRAs, 401(k)s, or 403(b)s third. You’ll pay income tax on withdrawals, but do this before touching Roth accounts.
• Lastly, withdraw from tax-exempt retirement accounts like Roth IRAs or 401(k)s. Saving these accounts for last makes sense, as you can take withdrawals without tax penalties. These accounts can also be used for estate planning.

These factors are complex, and you may want to consult a tax professional to help you apply these tips to your own financial situation. You can test different strategies and see which ones can help you minimize the taxes you’ll pay on your savings and benefits.

To learn more about how Acumen can help you Invest Intentionally®, please contact us.

ACR# 3493422 03/21

 
Acumen Wealth Advisors, LLC® is a Registered Investment Adviser. Advisory services are only offered to clients or prospective clients where Acumen Wealth Advisors, LLC® and its representatives are properly licensed or exempt from licensure. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. No advice may be rendered by Acumen Wealth Advisors, LLC® unless a client service agreement is in place. Acumen Wealth Advisors, LLC® is affiliated with RPAG and utilizes their robust retirement plan consulting tools and resources to deliver enhanced value to plan sponsor clients. RPAG™, a wholly owned subsidiary of NFP (NFP Corp.), provides retirement advisors premier technology, systems, training, and resources through its practice management platforms.

In light of Tax Day arriving in a couple days, we thought you might enjoy this article we found with some interesting facts about taxes through the years.

By  Louis DeNicola March 11, 2019                                            https://blog.cheapism.com/fun-tax-facts

INCOMING!

Acumen Wealth Advisors believes educating our clients is a priority.  Our team works together with our clients’ CPAs to implement tax efficiencies and deploy unified financial plans.  We recently met with CPAs Kyle Butler and Matt Hisey of Mauldin & Jenkins and a few of our clients to walk through the new changes to the tax code – and we have made this information available to you as well.  Some of the many changes affect individual taxes, rates, and the health care mandate; personal deductions, exclusions and credits; estates and gifts and trust rates; and provisions for pass-through entities. To learn more about recent changes to the tax code watch our highlights video HERE and read our highlights brochure HERE.

 

 

 

This is for general information only and is not intended to provide specific investment advice or recommendations for any individual. It is suggested that you consult your financial professional, attorney, or tax advisor with regard to your individual situation. This information has been prepared from sources believed reliable but the accuracy and completeness of the information cannot be guaranteed.

This original post was written by Martha C. White for Time.

Are you taking all the tax breaks you’re entitled to? Experts say you might be able to reduce your tax bill by taking advantage of the many exemptions, deductions, and credits built into the tax code.

Tax exemptions, deductions, and credits are all mechanisms that can reduce how much you ultimately pay in taxes.

This is the last year you can claim many of these breaks. The tax changes passed into law late last year won’t affect your filing this year. So you’ll definitely want to take this one last chance to claim all the tax relief for which you’re eligible.

Tax exemptions

“Exemptions are above-the-line deductions that allow you to reduce your overall income,” said Mark Jaeger, director of tax development at TaxAct. The most common of these, he said, are personal tax exemptions that let you write off a certain amount per eligible person in your household.

Currently, taxpayers are allowed to claim a personal tax exemption of $4,050 apiece for themselves, their spouse (if married filing jointly), and dependent kids. While the standard deduction is being doubled for tax year 2018, personal exemptions are being eliminated.

Tax deductions: Above- vs. below-the-Line

Tax exemptions and deductions both reduce your amount of taxable income, said Gil Charney, director at The Tax Institute at H&R Block. “It’s not a reduction of your tax liability, but it does reduce your taxable income,” he said.

If the amount of your tax deductions is high enough, you could lower your income enough to drop into a lower tax bracket, said Lisa Greene-Lewis, tax expert at TurboTax.

Tax deductions are referred to as either above- or below-the-line. “Above-the-line versus below-the-line refers to deductions claimed before calculation of adjusted gross income and deductions claimed after calculation of adjusted gross income,” Jaeger said. Some examples of above-the-line deductions include IRA contributions and moving expenses.

If you itemize your taxes rather than taking the standard deduction (which about 30% of taxpayers do), you can take additional below-the-line deductions against expenses like your state and local income tax, mortgage interest, and charitable donations. They are all below-the-line deductions, Jaeger said.

Tax credits: Nonrefundable vs. refundable

Unlike exemptions and deductions, tax credits work a little differently. “A credit reduces the taxes you owe, dollar for dollar,” Greene-Lewis said. You can be eligible for credits even if you don’t itemize and just take the standard deduction.

Tax pros say people miss deductions and credits often because they don’t realize all of the tax breaks available to them. Greene-Lewis said that the Earned Income Tax Credit, for instance, often goes unclaimed. “There are people that don’t file taxes that are definitely eligible for the EITC because it’s for lower to middle income, a lot of people may think they’re under the income filing threshold, but they could be be eligible for that credit and eligible for a refund for federal taxes taken out of their paycheck.”

That’s because the EITC is what’s known as a refundable credit. Nonrefundable credits can knock your tax bill all the way down to zero, but refundable credits, as the name implies, can essentially have the government paying you.

The deadline when taxes are due in 2018 is Tuesday, April 17.