Dominating the financial planning landscape so far in 2021 has been the possibility of changes to tax laws. At this time, no definitive plans to increase taxes on individuals have been introduced. President Biden recently unveiled an infrastructure and climate proposal that included an increase in tax rates on corporations. The plan calls to raise the corporate tax rate from 21% to 28%. In 2017, the corporate tax rate was 35%.
Even though everything is still speculative at this time, we did want to review the individual tax changes that are getting significant media attention and were a focus during President Biden’s campaign.
▪ Estate Tax Laws – Currently, individuals can pass $11.7 million to the next generation without paying estate taxes out-of-pocket. This doubles to $23.4 million for married couples. There has been talk of this threshold being lowered. In 2017, the limit was $5.49 million per individual, $10.98 million per couple.
▪ Capital Gains Taxes – The top capital gains tax rate is 20% for individuals with income above $445,850 and married couples with income above $501,600. There is some support in Washington to change the capital gains rate to ordinary income tax rates for taxpayers making more than $1.0 million per year. The top ordinary income tax rate is currently 37%.
▪ Cost Basis Step-Up at Death – Upon a taxpayer’s death, assets held outside of a tax-deferred investment vehicle receive an update in the cost basis based on the value of the asset on the date of death. For example: an 85-year-old has held shares of XYZ company for 50 years. The cost basis is $0 as it was gifted from an employer. The heirs receive the XYZ stock with the basis adjusted to the stock price on the date of death. The heirs sell the stock with minimal income tax consequences. Another common scenario is a primary residence purchased years ago in an area of the country that has seen rapid real estate appreciation.
Instead of adjusting the estate law as we discussed above, changing the cost basis step-up rules could generate additional revenue for the government and has gained ground in recent months. However, this is becoming less likely as administratively it would become much more difficult and time consuming to settle estates.
If you have questions on how potential tax law changes may impact your financial situation, please reach out to your Fee-Only Financial Planner or accounting professional.
Greg Galecki started the business that became Galecki Financial Management in August 1990. Over the last 30+ years, Greg became a leader in the financial planning industry, a radio personality (on a show that lends our newsletter its name!), and grew GFM into the Fee-Only Wealth Management firm it is today.
Greg was one of the first advisors in the State of Indiana to adopt the Fee-Only approach as opposed to commission-based compensation. That mentality of always putting the best interests of our clients ahead of our own, has been ingrained into every advisor, employee, and intern that has walked through our doors over the years. Under Greg’s leadership, GFM has grown to have the strong reputation it has today.
With that we announce that Greg will be retiring at the end of 2021.
Throughout Greg’s time growing GFM, he always made the succession of GFM a priority. He brought on a team of other Financial Planners to not only help grow the firm, but ensure that his clients would be taken care of well after his retirement.
Today GFM has grown to include six other Financial Planners and Shareholders aside from Greg: AT Kohout, Brady McArdle, Melanie Colwell, Kevin Chandler, Andy Young, and Chloe Blythe. AT became a shareholder in 2006, Brady and Melanie in 2011, and Kevin, Andy, and Chloe in 2019. As of January 1, 2022, the remaining six shareholders will be taking the reigns as full owners of the business.
There is no one quite like Greg Galecki. His leadership, knowledge, humor, and world-class metaphors are one-of kind. We are thrilled for Greg as he transitions to this next stage of his life but will of course miss his quick wit around the office.
AT, Brady, Melanie, Kevin, Andy, and Chloe are all looking forward to carrying the mission and core values that Greg instilled in us for years to come. We will continue growing the legacy and story of Galecki Financial Management for another 30+ years.