Hartford Business Journal Ask the Expert Feature with Emily R. Wood, CFP®
Q: What is Biden proposing in his American Families Plan, and who will be exposed to its effects?
Biden’s American Families Plan has far-reaching impacts on business owners, executives, real estate investors, and Connecticut estates. Fundamentally, this proposal has the potential to shift how high-net-worth and high-income individuals strategize, plan and manage their savings and portfolio, their tax plan, their plans for gifting, their estate plans, and more. Many are focused on ordinary income and capital gains tax rates increase.
Q: How would that play out here in Connecticut, in tandem with state taxes? What would the total potential tax rate be?
I don’t think it’s a secret. Connecticut, like many other states in New England, pays a higher income tax relative to most states. I applaud the state for taking steps to make Connecticut more friendly to retirees with earnings under $150,000. We’ve been monitoring the legislature’s finance committee’s range of tax increases. Due to proposed tax rate increases in NYC, we continue to see high-income individuals consider Connecticut residency as a significant tax saving.
Q: How likely is it that the Biden Tax Plan will go into effect?
If you thought betting or timing the market was tough, try doing the same with DC! Assuming votes follow party lines, I suspect the proposal will pass. Congressional headwinds are likely to force changes. Biden’s budget proposal assumed capital gains in excess of 40% would be retroactive to April of this year. Changing the rules midyear doesn’t bode well for constituent approval. Folks don’t appreciate changing the rules mid-game.
Q: What are some things that high-net-worth individuals or business owners should consider doing right now?
If you are 1 – 3 years from selling an appreciated asset, be it a business, real estate, or company stock, take a hard look at pulling that transaction forward. For business owners, in particular, the clock is ticking. Start the due diligence process immediately. Even if you get to the finish line and change your mind, that experience is incredibly valuable. And for those considering purchasing a business, take advantage of the factors in your favor. Borrowing is cheap and your seller is likely very motivated. For those with fluctuating incomes of around $400,000, annual tax planning is your friend. It would be impossible to go into all of the details of why, but there are savings to be had by mapping out your income and deductions. For those consistently earning $1,000,000 plus annually, take a hard look at how your portfolio is constructed. What is your plan for exiting highly appreciated positions? How about your plan for rebalancing? A combined capital gains tax of nearly 50% reinforces CTMW’s investment philosophy of reflecting our best and most current thinking in our portfolios.
Q: Thinking long-term, are there specific steps someone should take to protect themself or their business to minimize the impact?
I’d charge the long-term investor to remember change is a constant. Any time there is disruption, be it markets or tax law, there is opportunity. You simply have to pay attention to all the details to find the opportunities to optimize.
Q: What kind of impact can we expect from the proposed change?
I’ll answer that with what I see daily in anticipation of change. Business owners are prioritizing and getting serious about succession planning. For an executive, we are mapping out what it looks like if they hold or sell their company stock. We’re demonstrating what this change means for an estate plan, so clients can actually see and ensure their estate plan is optimized. Day in and day out, we are helping folks gain visibility into what all this means for them, which allows them to be intentional about how they choose to live their one wild and precious life.