Third Quarter 2021
The Taxman Cometh, But Maybe Not For You
For sure the taxman in America today is not as egregious as the Beatles described in their 1966 hit song “Taxman” which began with these lines: “Let me tell you how it will be. There’s one for you, 19 for me. Cause I’m the taxman. Yeah, I’m the taxman”. Click here to listen.
Fast forward to 2021 when higher taxes are in the news in America, but not anywhere near the 95% super tax bracket the Beatles sang about 55 years ago.
Let’s examine some of the current proposed tax changes to see if they affect you:
- Individual Tax Brackets — restores top marginal tax rate to 39.6% and only applies to taxable income above $400,000 for single and $450,000 for married filing jointly (MFJ).
- Capital gains rates — new top 25% bracket after 9/13/21 only applies to singles taxable income above $400,000 and MFJ over $450,000 taxable income. Maintains 0%, 15% & 20% tax brackets for singles below $400,000 and MFJ below $450,000 taxable income.
- Remember that taxable income (line 15 on your tax return) is AFTER all deductions.
- Corporate taxes — increases corporate tax rate to 26.5% from 21% passed in 2017 but is much lower than the 35% tax rate pre-2017 where it had been from 1995-2017.
- Reduces estate tax exemption to $6.02 million per person (or $12.04 million for married couples). Estates below those amounts are not subject to estate taxes.
- Ultra-high income 3% surtax — only applies to adjusted gross income > $5 million.
The bipartisan congressional Joint Committee on Taxation (JCT) estimated that:
- households making less than $200,000/year would see lower tax bills through 2025.
- households making $200,000-$500,000/year face 0.3% average tax increase in 2023.
- those making $1 million/year face +10.6% increase in 2023 & +12.1% by 2025.
No matter what happens, remember the idiom cautioning business people against making decisions solely on the basis of tax concerns — “Don’t let the tax tail wag the investment dog”.
The W&A wealth strategists stand ready to work with you & your tax advisor to follow the advice of Judge Learned Hand: “Anyone may so arrange his affairs that his taxes shall be as low as possible; he is not bound to choose that pattern which will best pay the Treasury…”
Author: Senior Vice President Senior Wealth Strategist
Phyllis had been associated with W&A for a number of years before joining the firm, acting as a consultant to the company in its formative stage and subsequently as a client.
Prior to joining W&A, Phyllis served as Vice President, Corporate Finance at Morgan Keegan & Company, Inc. She was involved in all aspects of its investment banking activities, including mergers and acquisitions, valuation studies, and initial public offerings. She earned registrations in NASD Series 7 (Registered Representative) and Series 63 (Blue Sky).
Phyllis holds an MBA in Finance as well as M.Ed and BBA degrees from the University of Memphis. She is a Chartered Financial AnalystTM(CFA®) and a Certified Financial PlannerTM(CFP®) Licensee. She is past-Chairman and past-President of the Mid-South Society of the Financial Planning Association (FPA) and served on their Board of Directors from 1995 to 2000. During her term as President in 1998, the Mid- South Society of FPA was chosen the Outstanding Society of the Year by the national FPA organization.
Her community volunteer activities include MIFA and the Women’s Foundation for a Greater Memphis, where she served as Treasurer, Chair of the Finance Committee and currently chairs the Investment Committee. She also serves on the Board of Governors of The Seaside Institute in Seaside, FL.