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Tags: federal and state and local taxes

George Mentz on Brutal Tax Changes: Income, Estate, Corporate & Billionaire


By    |   Tuesday, 14 December 2021 12:45 PM EST

Legislation passed this year may raise the top individual tax rate up to 39.6%, from 37% currently, for taxable income above $400,000 for individuals and $450,000 for married couples. If you add in the Obama taxes and state tax, you can reach 50% or more in places like New York and California. The new law may also add a tax surcharge of 3% on taxable income above $5 million.

However, Congress has not increased capital gains taxes and dividend taxes on billionaires.

Higher Capital Gains Taxes

New legislation in Congress increases the top long-term capital-gains tax rate up to 25% from 20% on individuals with taxable income over $400,000. Thus, if you sell a business to retire from California or New York, the seller now pays the 25% tax plus state taxes, which could be around 35% to 40% of your retirement savings. Sellers may also need to pay extra Obama Net Investment Income Tax (NIIT) of 3.8%.

Corporate Taxes

The White House tax plan would crank up the corporate income tax from 21% up to a whopping 28% plus state taxes. It would raise taxes levied on international corporate income while increasing taxes on pass-through business income. Also, there may be a 15% minimum corporate tax added. In sum, the U.S. would be forced back into becoming the worst-ranking "business-friendly" nation.

Estate Taxes and Trusts

If your net worth is under $6 million (or $12 million for a married couple), you may be OK for now. However the new changes dramatically affect planning options and timing.

Under current laws, the estate and gift tax exemptions are $11.7 million dollars per person or double that, $23.4 million, for a married couple. You can make these legal gifts tax free, up to the exemption amount of $11.7 million dollars per person, during life or at death. Or,  you can make a combination of lifetime and death gifts using wills and trusts, etc. The exemption amount gets adjusted each year, and if no change in the law is made, it will increase to approximately $12,060,000 in 2022.

With the new changes, the estate and gift tax exemption law now sunsets in year 2025. Thus, the estate and gift exemption amounts will crash down to the former $5 million exemption. Approximately, this exemption is expected to be about $6.2 million in 2025 if adjusted for inflation.

The Bad News for Estates and Business Succession

If a couple passes away in 2026 and leaves $30 million to their heirs and has not conducted any financial planning, they would be able to pass approximately $12.4 million tax free to their heirs. However, the remaining $17.6 million would be taxed at an approximate rate of 40%. This creates a roughly $7 million in federal estate taxes.

Experts are suggesting that you gift to trusts all of the ($23.4 million “tax free” amount for a couple) in the coming five years. This would bring the $30 million estate down to $6.5 million dollars, producing a tax bill of about $2.5 million compared to taxes of $7 million. This is a $4.5 million dollar savings!

With the new taxes, advisors will begin promoting strategies such as: 1) Minority Interest Discounted Gifting, 2) GRAT Grantor Retained Annuity Trusts and 3) Sales to IDGT Intentionally Defective Grantor trusts, and 4) Annual Gifting, and, finally, 5) LLCs, or Limited Liability Companies, may again become extremely popular for creating entities to hold stock, property, and assets where minority interests may be given away but control is kept via the operating agreement.

Billionaire Tax on $50M
Could Be a Possibility

As for the new tax policy, there are still many questions to be answered. In the State and Federal tax code, property owners may pay about 1% per year in property taxes for homes, buildings, and so forth. Owners of assets & property in the form of stocks, do not need to pay annual Federal property taxes. Thus, we will probably see a new Billionaire Tax or ad-valorum type progressive taxes on a net worth over 50 million or example. Remember, stock securities have a definite value each day that can be calculated.

The new laws may also tax unrealized capital gains at death for unrealized capital gains over a certain amount. There are many new arguments that claim an unrealized tax on assets would also change investor behavior or incentivize the use of non-taxable investments or instruments.

All In, Taxes Would Be 57.4%

If the Democrats tax increases are enacted, the average top tax rate on personal income would rise to 57.4 percent, according to the Tax Foundation. The USA would then have the worst income tax structure in the developed world. The federal and state top marginal income tax rates would go up to new levels, as well. See below:

1. New York: 66.2%

2. California: 64.7%

3. New Jersey: 63.2%

4. Hawaii: 62.4%

5. Washington, DC: 62.2%

Go to the Tax Foundation website for a handy map of 50 states and new tax hike levels compiled by Alex Durante and William McBride:

Gift money now, before estate tax laws sunset in 2025 – Press Enterprise (pe.com)

George Mentz JD MBA CILS is a CWM Chartered Wealth Manager ®, global speaker - educator, tax-economist, international lawyer and CEO of the GAFM Global Academy of Finance & Management ®. The GAFM is a TUV accredited graduate body that trains and certifies professionals in 150+ nations under ISO 29990 standards. Mentz is also an award winning author and graduate law professor of wealth management in the USA.

Mentz is 1st in the world to be credentialed as a: Doctor of Jurisprudence, MBA, investment advisor, financial planner, US federal courts attorney, international law certification, & management consultant, and he is a two-time award winning professor teaching 250+ law, business, and ethics courses. Mentz was an economic advisor for the Trump Campaign CO, has published 40+ books and audio books who has written for the US Dept of Labor, O-Books UK, eFinancialCareers, & National Underwriter.

Mentz has served boards or advised The Global Finance Forum, World eCommerce Forum, top banks such as HSBC and Bank of China, UN, Arab Academy of Banking, African Economists Association & has even been accepted as an expert in securities arbitration & mediation. Mentz and his companies have been featured or quoted in Forbes, Reuters, Wall St. Journal, The Hindu National, El Norte Latin America, the Financial Times, NYSSA, The China Daily, & The Arab Times. Mentz enjoys tennis, travel, raising 3 children, and serving as the titular Seigneur of the Fief Blondel which is one of the oldest legally recognized fiefdoms in the UK Crown Dependencies.

Mentz can be contacted at www.GMENTZ.com or at his global certification training company www.GAFM.com

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Legislation passed this year may raise the top individual tax rate up to 39.6%, from 37% currently, for taxable income above $400,000 for individuals and $450,000 for married couples. If you add in the Obama taxes and state tax, you can reach 50% or more in places like New...
federal and state and local taxes
Tuesday, 14 December 2021 12:45 PM
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