‘You might want to take a larger bonus’
The Democrats’ plan also includes restoring the top individual income rate to 39.6% for taxable incomes above $400,000 from 37% enacted under the Trump administration. To avoid that hike that will likely start in 2022, high-income earners are accelerating income into 2021.
“It is prudent that if there is a way to accelerate income that was going to be included in 2022 to attempt to accelerate it into 2021,” Taub said. “You might want to take an additional salary, you might want to take a larger bonus if you think you're going to be in the higher rate next year.’
Individuals may also convert traditional IRAs to Roth IRAs or exercise stock options to pull forward income. Deferring deductions to 2022 also can lower taxable income for high net worth individuals, while business owners can invoice earlier to get that income in 2021 versus 2022.
‘A lot of value you can get out of your estate’
Democratic lawmakers also want to reduce the estate and gift tax exemption to $5.85 million from $11.7 million, subjecting more people to estate taxes starting next year. Transferring lifetime wealth before the end of 2021 could lead to a significant break for high-income earners.
Wealthy individuals are considering gifting assets before year-end or creating a trust to shield wealth from the estate tax. By doing so, an individual can still be the income beneficiary and use the cash flow from those assets that are invested, according to Losi.
“I’ve actually had more trusts set up in the past 18 months than I've had in a long time,” he said. “That's a lot of value you can get out of your estate and it's liquid wealth."
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