Taxes for 2021


Taxes for 2021

Before the COVID 19 crises the Federal Budget deficit for 2020 was forecast to be $1.1T, so far $2T of stimulus has been approved with more to come. This has lead to the Federal Debt to explode to $25T with more to come… GDP is around $21T so we are easily over 100% Debt/GDP ratio.

This set of data has led many clients to ask how this will be paid for and will it lead to inflation.

I’ll tackle inflation in a future post, but how do we pay for this debt. I see two ways out – a debt jubilee(unlikely) or increased taxes at some point in the future.

If there is a change in the Senate or the Whitehouse in November then this could definitely lead to increased taxes.

Taxes are applied in three main ways: income, capital gains and estate taxes.

Income – taxed at 37% for married filing joint over $622k (Don’t forget CA + 12.3)

Capital Gains – taxed at 20%.

Estate Tax – 40% on estates over $11.58m.

also there is the Net Investment Income Tax 3.8% on investment income (dividends, cap. gains and interest, when income is >$200k).

As you can see tax rates are high and could be going higher.

So what do we do now?

Plan – what planning can we do to help mitigate the impact of taxes,

Accelerate – can we accelerate gains/income into this year if we think tax rates are going to be higher next year,

Freeze – With Unified Credit at $11.58m we are encouraging clients to look at various gifting strategies to move assets outside their estates today, thus freezing the value of their lifetime gifts.

The next 6 months are going to be noisy so we are trying to act thoughtfully around the noise.

Bye for Now.

Damien Lanyon

Damien is the founder and owner of Lanyon Advisory Services and has a extensive knowledge and experience in financial planning and wealth management.

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