Politicians have plans to raise taxes. Regardless of what you think about that, you need to be ready to take action.
What is the 99.5% Act?
The “For the 99.5% Act” is a proposal that aims to recover more taxes from the wealthiest 0.5% of people in the country. Hence the name. Yet, some of the proposed changes could affect you if you are less well off.
Here are three of the key areas which could affect you:
- Step-up in basis: When someone sells assets they inherited, they pay capital gains tax. They currently pay it on the sale price minus the market value when they inherited them. If the government did away with this, your heirs would pay more capital gains tax. They may have to pay it on the sale price minus what you bought them for. If you purchased the assets a long time ago, that could be a big difference.
- Federal estate tax threshold: The 99.5% Act proposes dropping the limit to $3.5 million per person or $7 million per couple. Currently, it is $11.7 million per person or $23.4 million per couple tax-free. The proposed legislation would also increase the tax rate. Currently, it is 40% on anything over the threshold.
- Gift allowance: This provides another way of transferring assets to your family without paying tax. Those behind the bill feel the tax-free allowance is much higher than it should be. They may seek to reduce either the annual or lifetime limit or both.
The 99.5% Act is, at present, nothing more than a proposal. It has many critics and will meet with opposition. However, the chance of changes to tax rules that affect estate planning is real. If you are unsure where you stand, it is best to seek advice early.