People pay capital gains tax on the money they make when selling assets, which include stocks and real estate. Rates on the capital gains tax rate vary depending on your tax filing status and your income. Many argue raising the capital gains tax would slow the economy.
If Congress passes President Joe Biden’s capital gains tax, it would mean you would pay more in taxes if you earn more than $1 million per year.
Here’s what you should know about Biden’s capital gains tax.
Biden’s Capital Gains Tax Would Be Among the Highest in the World
If the Biden Administration gets its way, Biden’s capital gains tax rate will go from 20% to 39.6%. You then must include state and local taxes. Biden’s long-term capital gains tax would be among the highest in the world.
People in most countries pay a minimum capital gains tax rate of 10%, but in places like Turkey and Switzerland, there is no capital gains tax.
Because capital gains tax rates vary in the United States from state to state, people in places like Alaska, Washington, and Texas would pay lower rates. California, Hawaii, and New Jersey pay the highest capital gains tax rate by state.
The plan also calls for taxing capital gains at death.
There could be retroactive capital gains tax rate dating back to April of 2021 if the proposal passes Congress.
Staunch Opposition
Many GOP politicians argue raising the capital gains tax would slow the economy. Some believe given the coronavirus recovery, it’s a bad time to raise taxes especially on those affected most by Covid-19.
Suzanne Clark, President, and CEO of the U.S. Chamber of Commerce is working to stop Biden’s capital gains tax. She told CNBC people ‘should not be punished for investing in the economy. Clark doesn’t believe the proposal can pass Congress.
Some Democrats are also worried the short-term capital gains tax and long-term capital gains tax could be too high. They worry a high capital gains tax could risk support for other proposals from the Biden Administration, like the American Families Plan.
Future Estate Planning
Because Biden’s capital gains tax calls for increases, you may want to consider talking with your financial planner about ways to avoid capital gains.
Several laws already exist when it comes to exemptions in the capital gains tax. An irrevocable trust or annual gifts of up to $15,000 might be good options to avoid long-term capital gains.
These types of options may benefit you when considering estate planning.
What You Should Know About Biden’s Capital Gains Tax
Biden’s capital gains tax would be among the highest in the world, and while the proposal is not yet law, there is staunch opposition to raising the capital gains tax rate. You should already think about estate planning because of the capital gains tax.
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