Wealthy Americans are prepping their finances for a Joe Biden win and the higher taxes that might bring by converting to Roth IRAs and nailing down their estate planning.
San Francisco accountant Scott Hoppe had a client who was planning to stretch the sale of founder shares in a tech-sector company over a three-year period.What accelerated the deal?
The compressed transaction, then, could have saved the client approximately $320,000 in taxes on the $6 million sale. “The seller, for sure, was motivated, and the buyer had the wherewithal” to pay the full price upfront, said Hoppe. Either way, though, many of America’s affluent households, and the experts who advise them, aren’t waiting.
Bishop’s liberal-leaning clients want to hear about potential opportunities and tend to downplay the idea of new tax rules upending their finances. As for Bishop’s conservative-leaning clients, “they think this is going to hell in a hand basket” and want to get ready to quickly lock in rates and minimize tax exposure if Biden wins.
Estate planning Americans will inherit $765 billion this year in gifts and bequests, and that sum will generate $16 billion in taxes, according to New York University Law School professor Lily Batchelder, who says that’s barely a 2% effective tax rate. Michael Whitty, a partner specializing in estate law at Freeborn & Peters in Chicago, is telling his clients to schedule one-hour calls with him now to game out election contingency plans.
At Playfair Planning in Brooklyn, CEO Kim Bourne is advising clients more than ever to file estate-tax returns even when they don’t have to. This gets asset valuations on paper — a move that will ease cost-basis determinations later on, she said. He also wants the rich to pay more into Social Security. Employers and employees currently pay a combined 12.4% in payroll taxes on the first $137,700 an employee earns. Biden’s proposal would restart payroll taxation, still at 12.4%, at the 400,001st dollar a person makes.
“ ‘It’s only if you know that you’re going to have to sell investments in the next year or so that we recommend you do that now versus later.’ ” The 2020 presidential campaign comes with an increasingly short-staffed Internal Revenue Service auditing fewer returns. The agency data show the IRS audited 1.73 million returns in fiscal year 2010. The IRS audited just over 770,000 returns in fiscal 2019, which is fewer than 0.5%.
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