Perhaps you have heard rumblings of President Biden’s tax plan having a major effect on what individuals are paying in capital gains taxes, but you aren’t quite sure if the new rules apply to you. No one wants to see a tax increase when they are already paying a healthy chunk of change to Uncle Sam.
The good news is that for most Americans, these Biden administration-guided changes to the tax law will not have any impact on most citizens. However, if you are making in excess of a million dollars annually, sadly, the same cannot be said. Today, your Maggi Tax team is here to help you decode this new tax plan and how it will affect your capital gains taxation.
Before we dive in, let’s take a look at what capital gains taxes are. Capital gains are taxes that are paid on the profits earned from the sale of certain investments and/or assets. The tax rate that is applied to these earnings is the same for other income that is coming in if you make over one million dollars in a year.
Under the Biden tax plan, the wealthiest earners will see their capital gains tax rate increase from 20% to match the current income tax rate of 39.6%. Yes, folks, that is almost a doubling in the capital gains tax. Ouch! It should also be noted that some investment sale profits will be subject to an extra net investment income tax of nearly 4%. As you can see, these tax code changes will really impact the wealthiest Americans’ bottom line profits from investment and asset sales.
Now, I know what you are reading may have you starting to stress out, but as we close, we want to stress some points of good news so that you can continue with your day with a smile on your face. First, if you have the majority of your personal wealth invested in a qualified retirement plan like a 401K, capital gains taxes are not assessed on investment income in these types of accounts. Secondly, less than one-half of one percent of Americans actually have an annual income that is high enough to be impacted by these capital gains tax changes.
The bottom line is that chances are, you will not feel any impact from the Biden tax plan changes to capital gains taxes. To learn how the other tax law adjustments may affect you and your family or for excellent tax planning guidance, don’t hesitate to reach out to the friendly and knowledgeable team of tax gurus at Maggi Tax. Give us a call today! (813) 590-6806
