For wealthy Americans worried about higher taxes, the future is looking bleaker. It’s all but inevitable that the Biden administration, as well as lawmakers at the state level, will target millionaires and billionaires for more levies. The new reality could feel harsh for investors who got used to paying a top rate of 23.8% on their capital gains, an amount they can lower further with many of the deductions, incentives and accounting tricks offered by the U.S. tax code.
Advisers, of course, will certainly try to help their clients adapt to whatever the new rules may be. “We’re not going to evade taxes, but we’re going to avoid them and defer them as much as we can,” Bill Schwartz, managing director at Wealthspire Advisors, said in an interview. “We’re only beginning to explore. Give us a year or two and we’ll find ways around things.”
Wealthy Americans were amply warned that President Biden and Democrats in Congress want to raise their taxes. But what has surprised at least some of them is the size and speed of proposals.
On Thursday, Bloomberg reported that Biden plans to nearly double taxes on capital gains, pushing the top rate to 43.4% for those earning $1 million or more. If passed by the Democrats’ narrow majorities in Congress, it would fulfill a campaign pledge “to reward work, not just wealth” by bringing the tax on investors up around the level paid on ordinary wage income.
Some members of the top 0.1% expressed anger, denial and grief. The stock market, which has steadily risen since Biden won the election, reacted with dismay, with U.S. equities falling the most in five weeks on Thursday.
“Obviously, this is eye popping,” John Norris, chief economist at Oakworth Capital Bank, said in a note sent to clients. He calmed clients with the suggestion that “it likely won’t come to pass, at least at these levels,” adding: “Remember, elected officials on both sides of the aisle have wealthy donors who probably won’t like this very much.”
Biden is signaling an epic shift in tax policy: For more than a generation, presidents and Congresses have rolled out the red carpet for investors. When not cutting taxes on capital gains and dividends, lawmakers introduced incentives designed to encourage investment in targeted areas.
They were following both campaign contributors and economic orthodoxy, which insisted that low taxes encourages the sort of investment that boosts economic growth. But then a new generation of economists pointed out that the real-world evidence for those theories was flimsy.
Tax cuts don’t seem to have juiced economic growth in the U.S. over the last few decades, even as they coincided with soaring income and wealthy inequality. Incentives programs — such as Opportunity Zones, a bipartisan idea to steer money to low-income areas implemented by President Donald Trump — have been criticized for rewarding investment that would have taken place anyway.
“Nobody has a crystal ball,” James Bertles, managing director at Tiedemann Advisors in Palm Beach, Florida, said in an interview. However, after the federal government spent trillions of dollars on Covid-19 relief, “most people think taxes are going to go up — it’s inevitable. We just don’t know which taxes are going to go up.”
If Biden is successful, Wall Street and investors who make most of their money from capital gains may need to get used to the idea that their taxes will look more like those of wealthy professionals such as doctors, lawyers, entertainers and even investment bankers who currently face marginal income tax rates north of 50% in high-tax states.
“Nothing is going to surprise us as this point,” said Tara Thompson Popernik, director of research for Bernstein Private Wealth Management’s wealth planning and analysis group. “We’ve been telling our clients for some time that this is likely coming.”
Strategies to avoid a higher capital gains rate will depend on the details of the proposal, and on what other provisions get changed. An obvious technique, Schwartz and other advisers said, would be to keep incomes under $1 million — or whatever threshold is in the final legislation.
Investors might also avoid the higher rate by holding onto assets for as long as possible. That strategy, however, could be complicated by other provisions that Biden and Democrats have floated, like beefing up the estate tax and ending a rule, called step-up-in-basis, that allows asset-holders to wipe away capital gains taxes at death.
Life insurance products could also be a way for investors to cut investment taxes, as long as Democrats don’t target those strategies as well.
Alternatively, investors and business owners could rush to sell assets now, or before the end of the year — assuming tax changes aren’t made retroactive to the beginning of the year — to lock in lower rates. Advisers said they’ve been discussing sales of art and family businesses, along with highly appreciated stock, by year-end.
“If you’re going to do it anyway, maybe do it now,” Bernstein’s Thompson Popernik said. “The worry is that in the fourth quarter everyone else is going to be trying to make those changes at the same time.”
Thursday’s drop in the market prompted worries that, as Biden’s plans solidify and Congress starts to take action, stocks could continue to sell off. But it might not work that way.
“I would tell people to temper their fear of a significant drop-off in the markets,” said Bob Schneider, director of financial planning at Johnson Financial Group. Historically, markets have often risen even while taxes are going up, he said.
Indeed, stocks climbed on Friday after strong economic data. Also, what else are investors going to do with their money? Especially at a time when the economy seems to be bouncing back from the pandemic, many investors want exposure to stocks.
“Yields are very low, so there aren’t a whole lot of other options,” Schneider said. “People will realize their gains and probably turn right back around and put their money back in the market.”
Hear that? It’s the sound of millions of taxpayers cheering across the country: the Internal Revenue Service (IRS) has announced the open of the tax filing season. That date is February 12, 2021.
If you want to get your refund as fast as possible, the IRS recommends that you e-file your tax return and use direct deposit (be sure to double-check those account numbers before you send your return). If you file by paper, it will take longer. According to the IRS, eight out of 10 taxpayers get their refunds by using direct deposit.
Assuming no delays, here are my best guesses for expected tax refunds based on filing dates and information from the IRS. I can’t stress enough that these are simply educated guesses. I like math and charts as much as the next girl, but there are a number of factors that could affect your tax refund (keep reading)
* No matter when you filed your tax return, if you claimed the EITC or the ACTC, don’t forget to take into consideration that hold date.
My numbers are based on an expected IRS receipt date beginning on the open of tax season, February 12, 2021, through the close of tax season on April 15, 2021. To keep the chart manageable, I’ve assumed the IRS received your e-filed tax return on the first business day of the week; that’s usually a Monday, but if there’s a holiday (like President’s Day), I’ve skipped ahead until Tuesday. The same logic holds true for issuing refunds. In reality, the IRS issues tax refunds throughout the week, so the date could move forward or backward depending on the day your return was received.
Other sites may have different numbers but remember they’re just guessing, too: The IRS no longer makes their tax refund processing chart public.
Do not rely on any tax refund chart—this one included—for date-specific planning like a large purchase or a paying back a loan.
Remember that if you claim the earned-income tax credit (EITC) and the additional child tax credit (ACTC), the IRS must wait until February 15 to begin issuing refunds to taxpayers who claim the EITC or the ACTC (that’s pretty close to the start date). Don’t forget to consider regular processing times for banks and factor in weekends and the President’s Day holiday. The IRS expects to see tax refunds begin reaching those claiming EITC and ACTC during the first week of March for those who file electronically with direct deposit and there are no issues with their tax returns.
If you want to get your tax refund as fast as possible, the IRS recommends that you e-file your tax return and use direct deposit. Keep in mind that if you e-file, the day that the IRS accepts your return may not be the day that you hit send or give the green light to your preparer. Check your e-filing confirmation for the actual date that the IRS accepts your return.
If you file by paper, it will take longer. Processing times can take more than four to six weeks in the best of times (and these are not the best of times) since the IRS has to manually input data. Don’t forget about postal holidays, too, when counting on the mail. There’s just one official postal holiday during tax season, Monday, February 15 (President’s Day), and one that follows just after tax season, Monday, May 31 (Memorial Day).
Even if you request direct deposit, you may still receive a paper check. Since 2014, the IRS has limited the number of refunds that can be deposited into a single account or applied to a prepaid debit card to three. Taxpayers who exceed the limit will instead receive a paper check. Additionally, the IRS will only issue a refund by direct deposit into an account in your own name, your spouse’s name or both if it’s a joint account. If there’s an issue with the account, the IRS will send a paper check.
If you’re looking for more information about the timing of your tax refund, don’t reach out to your tax professional. Instead, the IRS encourages you to use the “Get Refund Status” tool. Have your Social security number or ITIN, filing status and exact refund amount handy. Refund updates should appear 24 hours after your e-filing has been accepted or four weeks after you mailed your paper return. The IRS expect that the refund tool will be updated for those claiming EITC and ACTC, beginning on February 22, 2021. Otherwise, the IRS updates the site once per day, usually overnight, so there’s no need to check more than once during the day.
If you’re looking for tax information on the go, you can check your refund status with IRS2Go, the official mobile app of the IRS. The app includes a tax refund status tracker.
Remember that the IRS will not contact you by phone or by email regarding your refund. If you receive a call from someone claiming to be from the IRS or a debt collection agency regarding your tax refund, hang up immediately: it is a scam. Follow me on Twitter or LinkedIn. Check out my website.
Kelly Phillips Erb Years ago, I found myself sitting in law school in Moot Court wearing an oversized itchy blue suit. It was a horrible experience. In a desperate attempt to avoid anything like that in the future, I enrolled in a tax course. I loved it. I signed up for another. Before I knew it, in addition to my JD, I earned an LL.M Taxation. While at law school, I interned at the estates attorney division of the IRS. At IRS, I participated in the review and audit of federal estate tax returns. At one such audit, opposing counsel read my report, looked at his file and said, “Gentlemen, she’s exactly right.” I nearly fainted. It was a short jump from there to practicing, teaching, writing and breathing tax. Just like that, Taxgirl® was born.
Once the tax liability has been determined, we must consider the final three items in income tax preparation: tax credits, other taxes, and payments. When an overpayment occurs, the taxpayer has the option of receiving a refund or applying the amount of the overpayment to next year’s estimated tax.
Thoughts on the Beginning by Al Sikes talbotspy.org – Today[…] faced by small businesses, I also noted how big businesses operate within a framework of tax advantage. They retain a variety of international experts to help them minimize taxes. Tax specialists guide them through the intricacies of reduction as they move manufacturing, sales […] intricacies of reduction as they move manufacturing, sales, distribution and even headquarters to tax-advantaged locations. President Biden is recommending a corporate tax increase going from 21% to 28%. Specific tax thresholds can get very complicated and are well beyond these several paragraphs […]0
Investments and Insurance – Popular Private Client – Popular Bankhttp://www.popularbank.com – Today[…] the benefits of your employer-sponsored plans, a 401(k), 403(b), or 457, and tapping into the other tax-advantaged plans such as IRAs and small business retirement plans, is one of the best ways t […] Not all tax advantages may be available to you […] as they relate to your individual retirement accounts, should be reviewed with your professional tax advisor […]28
— Are financial savings and insurance products safe… cmsgroupca.tumblr.com – Today[…] Tax-free savings account The tax-free savings account is an occupied or seizable savings product, regardless of the kind o […] The people who have a justifiable social insurance number to set money apart from tax-free throughout their lifetime. The benefaction of a tax-free savings account is not conclusive for income tax purposes […]0
School choice legislation on the fast track myemail.constantcontact.com – Today[…] the “Missouri Empowerment Scholarship Accounts Program” and specifies that any taxpayer may claim a tax credit, not to exceed 50% of the taxpayer’s state tax liability, for any qualifying contribution to an educational assistance organization for all tax years beginning on or after July 1, 2022. The cumulative amount of tax credits issued in any one calendar year shall not exceed $50 million […]0
Advancing Innovation to Make the U.S. More Globally Competitive spark.adobe.com – TodayTax Policy Tax policy not only helps drive competitiveness, but is an effective tool to support economic growth […] maintains an internationally competitive tax system, including a competitive and fiscally responsible corporate tax rate. Policymakers also have the opportunity to leverage tax policy to promote growth in high-skilled, highly paid jobs, including by supporting innovation an […] certainty for businesses worldwide and turn the tide against the proliferation of unilateral tax measures that contravene key international tax policy norms and impact the competitiveness of U […]0
Samoa: Staff Concluding Statement of the 2021 Article IV Mission HTML Filehttp://www.marketscreener.com – Today[…] The surplus in FY2020 was driven by a favorable outturn in tax revenue collection owing to improved tax compliance in advance of the phased rollout of the Tax Invoicing Management System (TIMS) […] through revenue mobilization over the medium term: A holistic approach will be needed by improving tax compliance, increasing excises (e.g., alcohol and tobacco), and broadening the VAT tax base in light of a gradual revenue loss expected from the PACER-Plus agreement […]0
HMRC waives penalty for late filing of self-assessmentshttp://www.bbc.co.uk – Today[…] The tax agency said more than 8.9 million customers have already filed their tax returns. However, taxpayers are still required to pay their tax bills by 31 January […] However, they will need to file their 2019-2020 tax return first. People who have tax bills over £30,000, or who need longer than 12 months to pay their bill, are advised to call HMRC […]0
If you’ve yet to get your stimulus money for your qualifying dependents, it could be on its way soon. On Tuesday, Internal Revenue Service Commissioner Charles Rettig answered questions from the Senate about the challenges of distributing stimulus payments authorized by the Coronavirus Aid, Relief and Economic Security (CARES) Act.
Rettig acknowledged flaws in the distribution process that have delayed or prevented certain payments from getting to Americans, especially for Social Security beneficiaries.
The CARES Act provides economic impact payments, also referred to as stimulus payments or stimulus checks, up to $1,200 for individuals and up to $2,400 for taxpayers filing a joint return. The act provides an additional $500 per qualifying dependent under the age of 17.
Since a large number of Social Security beneficiaries—around 20 million—don’t meet the annual revenue requirements to file tax returns, they were initially unable to receive certain stimulus payments that were sent based on 2018 or 2019 tax returns.
The IRS offered mixed messages about how Social Security beneficiaries could receive their stimulus checks. First, the IRS issued guidance going against the CARES Act, stating “some seniors and others who typically do not file returns will need to submit a simple tax return to receive the stimulus payment.”
After backlash, the IRS said individuals who receive certain federal benefits would automatically receive their stimulus payments. However, these individuals were instructed to use the Non-Filers Tool to submit additional information to the IRS about qualifying dependents, if applicable, to claim the additional money.
Government Lost Information Needed to Process Some Stimulus Payments
It turns out the IRS lost some of that information.
Those numbers are for payment calculations made from April 10 to May 17, 2020. Those calculations did not include additional money for qualifying children claimed on returns submitted through the online non-filer tool. Rettig on Tuesday revised that number down to 365,000.
Originally, the IRS said individuals who didn’t receive their dependent money wouldn’t receive it until some time next year. The IRS is now backtracking on that statement.
IRS officials told the GAO they’re working to identify individuals who did not receive additional money for qualifying children, but did submit it in the Non-Filers Tool, and expect to provide supplemental payments by the end of July. Rettig echoed that sentiment during his Senate testimony.
“We are going to be reiussing those $500 payments this summer,” Rettig said.
For individuals who missed the deadline to use the Non-Filers Tool to submit dependent information, however, Rettig would not commit to when they will receive the additional $500 per dependent, if at all.
“We have some limitations on abilities and capacities to move things through, but we’re sympathetic with trying to get as much funds out to as many people as possible as quickly as possible, so though that I can’t yet commit on [that] but we are taking a look at it,” Rettig said.
I’m a Personal Finance Reporter for Forbes Advisor. Previously, I covered personal finance at other national web publications including Bankrate and The Penny Hoarder. I’ve been featured as a personal finance expert in outlets like CNBC, Yahoo! Finance, CBS News Radio and more. When I’m not digging up the best ways to manage your money, I’m out traveling the world. Follow me on Twitter at @keywordkelly.