8 ways to prepare for the Biden tax hike, according to the world’s largest wealth manager

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Tax hikes are probably on the horizon as President Joe Biden’s infrastructure package begins its slow march to becoming law.

Of course, not every provision may end up in the final package. But it is pretty likely, according to Morgan Stanley researchers, that tax filers making over $400,000 will see an increase in their income tax rate, and that the capital gains rate — which taxes assets like stocks — will go up from its currently favorably low rate.

The top 1% of Americans would take on essentially all of the tax burden in Biden’s recent proposal, seeing taxes increase by about $100,00 a year.

The New York Times’ David Leonhardt reports that Biden’s tax proposals are still fairly moderate in a historical context, coming in far below the heights of the 1940s through 1960s. Even so, wealthy Americans are seeking guidance. Insider’s Hayley Cuccinello reported that those advising the wealthy have received a flurry of calls from clients worried about their taxes and estate planning.

UBS, the largest wealth manager in the world, has some thoughts on what panicked investors could do to prepare for these potential changes. In a Monday note, Solita Marcelli, UBS Global Wealth Management’s chief investment officer for the Americas, wrote of eight steps that worried investors can take.

Marcelli noted that a bill is still a ways off, with proposed tax measures likely be scaled back in the final product.

(1) Upping tax efficiency

Marcelli recommends eyeing the different tax situations for potential investments — and to weigh if switching over could incur capital gains that might offset potential tax benefits.

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“Separately managed accounts can be especially tax-efficient because they can utilize a tax-management overlay that realizes capital losses and defers capital gains on your investment down to the individual security and tax lot level,” Marcelli writes.

(2) Donate your stocks to charity instead of cash

That way investors won’t be hit with a capital-gains tax on the stock, which would happen if they chose to cash them out and proceed with a straightforward donation. Exempt nonprofits can benefit from their new donations, and “can benefit from capital gains on prior investments without incurring a liability at year-end.”

(3) Donate assets that can still grow

Give away part of your estate to funds that will still let those assets grow. Some foundations and other types of funds will hold onto the asset and then disburse both it and the value it accrues; Marcelli said that, for investors, that can defer or even cut down on tax payments, and yield greater after-tax value down the road.

(4) Move more money into untaxed income

“Allocating assets to tax exempt municipal securities over corporate bonds can help to reduce your ordinary taxable income,” Marcelli writes. UBS is not anticipating any major changes to how interest on state and local government bonds is treated.

(5) Sell off assets at a loss through ‘tax-loss harvesting’

“Tax-loss harvesting” is when you essentially sell off an asset that has lost value — so it hasn’t seen capital gains — …read more

Source:: Businessinsider – Politics


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