Tax Turbulence Ahead
By Saul Abrams
Daily headlines indicate the social, political, and economic tensions affecting daily life throughout the US. The economic slowdown, corresponding fall in government revenue (at every level of government), and the upcoming presidential election could all result in significant changes to the tax landscape over the next 6-12 months. As is so often the case, the fact that changes are coming seems far more certain than what those changes might be.
Three features of current tax law seem especially vulnerable to attack: (1) income tax rates; (2) corporate tax rates; and (3) the amount of an individual’s lifetime unified credit for gift and estate taxes. These tax laws have all been modified (to taxpayer advantage) by recent legislation, and in many respects are “low-hanging fruit” for politicians looking for revenues to offset government spending and deficits in these unprecedented times.
Indeed, all of these items are either explicitly or implicitly targeted in the tax proposals of Joe Biden, the presumptive Democratic nominee. Biden’s campaign positions call for increases in the highest marginal income tax rates, increases in corporate tax rates, and (at least) increasing and accelerating the tax burden on assets comprising a decedent’s estate.
For decades prior to the Tax Cuts and Jobs Act, it was generally agreed that the US corporate tax rates, which were among the highest in the world, were a significant drag on domestic economic growth. One would like to think that policymakers would remember that (if and) when considering any changes. Optimistically assuming that to be the case, increases in high marginal rates and estate taxes seems the most likely developments.
Fortunately, steps can be taken today to “lock-in” many of the currently available benefits of US tax law. Many of these steps involve the transfer of assets to other family members and/or partnerships or trusts. It is possible to maintain current income and control while protecting assets from future tax adversity, but this planning will almost certainly need to be completed before the end of the calendar year. Clients face the prospect of waking up on November 4 to find out that (a) there will be a presidential transition and (b) it has suddenly become more difficult to get tax planners to return calls.
The cross-border context offers particular opportunities to lock in currently available benefits. Subtle differences in international transactions can result in tax variations of almost 100%. Balanced against these risks are corresponding opportunities to maximize value and tax efficiencies. Acting to address future uncertainty is your best protection against any coming storm.
To schedule your initial consultation, please contact us at info@statebirdcorp.com so that we can help you create a plan as unique as your fingerprint.
State Bird Corp is a management and financial consulting firm. State Bird Corp is not an accounting, legal or investment advisory firm. Any recommendation, inferences, or other guidance contained herein is meant for educational or general purposes and should not relayed upon as specific advice for any person or business. Consult your legal, tax, and investment advisor for specific recommendation to your situation.
Abrams Law, PLLC is general counsel to State Bird Corp and several State Bird Corp employees. Used with permission.