Following the announcement of President Joe Biden’s American Families Plan on April 28th, the administration announced plans to offset expenditures by increasing taxes on high income earners. What could this mean for you? Here are the key points you should know:

  • On May 28th, Biden’s budget revealed plans to raise the marginal income tax rate up from 37% to 39.6%.
  • On top of this, the administration is aiming to increase the long-term capital gains tax rate up to 39.6% for taxpayers that have an income above $1 million.
  • With NIIT (Net Investment Income Tax) added in, individuals will face a tax hike of up to 43.4%, not including the average top state gains rates that may reach up to 5.2% in some places.
  • As a result, high net worth individuals may be taxed by nearly 50% under Biden’s proposed plan.

While discussions are still looming as to whether or not this will take place and what the timing would be if it did, it’s critical we understand the intentions of it now and prepare for what may come.

Long-Term Capital Gains

A long-term capital gains tax will be evaluated on assets, sold at a profit and must be held for at least one year. Circumstances will be different, as assets other than stocks, such as real estate, businesses, and other long-term forms of investment may fall under different capital gains tax brackets.


High earners who are nearing or are already retired may be able to bypass these new tax hikes by relocating their assets through a Qualified Leverage Strategy, or QLS. Again, every circumstance is different, but some may be able to execute this by, for example, moving funds from a 401k into a Roth IRA.

Charitable Donations

High income charitable clients may find it wise to donate some of their appreciated shares. This will allow you to make a charitable deduction for the market value of the shares you donated, resulting in a removal of a capital gains taxation.

 Inherited Assets

For those expecting to receive a large inheritance, another continuation of the Capital Gains plan may impact you. The Biden administration is aiming to eliminate the “step-up in basis” rule for inherited assets at thresholds of over a $1 million per individual. Current law allows for assets to receive a “stepped-up basis” to fair market value at date of death. Changes to this law may, for instance,  include the treatment of family-owned businesses passed onto beneficiaries.  The president is aiming to make these changes effective by December 31, 2021, however –much like other proposed plans– there are still have many details that need to be worked out.

Bottom line, Biden’s proposals have a long way to go before a bill is ready to be signed into law, but we must be cognizant of these potential changes and how they could impact you. Consideration into planning may be beneficial if it is accepted, and your bank account may thank you.


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Robinson, Gruter, & Roberts