How do we pay the coming bill?
February 27, 2021
Since the pandemic struck last March the Federal Government, and rightfully so, has spent a lot of funds keeping Americans and small businesses from going under. But one thing we all know is somewhere down the line the bill will be due for all of this. Here are some ideas that have been bounced around in Washington. Please keep in mind none of these are in the proposal stage, but they have been discussed.
The first idea being tossed around is the taxation of unrealized gains. Let's say for example a stock is purchased for $30 a share and at the end of the year the stock is worth $100 a share. There is no tax on this increase until you sell the shares. But if unrealized gains are taxed then the $70 increase would be taxed even if the sale did not take place.
There are several problems with this. If an investor has put all their spendable income in this purchase how would they pay the bill? They would have to generate outside funds to pay the bill. How would you tax artwork or jewelry that appreciated? Would you need an appraisal every year? What if the asset went down in value the following year? Would the appropriate credits be given?
Another idea being tossed around is eliminating step up in basis. If your parents for example bought their home for $50,000 and pass away leaving you a home now worth $300,000, your only tax would be anything over the $300,000 you inherited the property for. If the step up is eliminated your taxes would start at the $50,000 not the $300,000.
A third idea being mentioned is eliminating the capital gains tax or increasing the top rate. This idea comes up every few years and increasing the top end from 20 percent to 39.6 percent for wealth individuals may be able to pass.
Keep in mind these ideas have been mentioned in DC, but nothing has been formally introduced. My suggestion is to talk to your financial advisor just to make sure you're prepared for whatever increases become law in the future.
Marty Pay has been the local Farmers Agent in Tehachapi for over 30 years. He also has a Master's in Business Administration and is a Chartered Life Underwriter. He also teaches Finance at a local University. His office is at 212 W. F St. in Tehachapi. (661) 822-3737