The Biden administration has many proposals on the table for increasing taxes. These may just be opening bargaining positions and the net result will turn out to be different and perhaps less. However, it is likely that taxes are going higher. These include taxes on income for high earners, capital gains, corporations, estates, along with rule changes to prevent avoidance. Some of these could have disastrous impacts, especially for small and medium size businesses and their owners.

For instance, capital gains for earners over $1 million would be taxed at the maximum income tax rate. Selling a business would likely trigger this. By the time local and state levies are assessed the resulting rate could be over 50%. Half the value of a long-held firms could be lost to the government. Talk about impacting retirement plans for countless owners. There may be some ways to mitigate the impact, but it is obvious the damage to financial plans could be ruinous. We have identified some ways to get around this, but we cannot know this until the entire set of rules are set.

One obvious mitigating action that investors can immediately take is to use any tax loss carry forward amounts now. A highly appreciated asset can be sold and immediately bought back. This will trigger a recognition of the gain. If this is offset with losses, then there is no tax consequence, but the cost basis has been raised to the new current valuation. If the position is then sold for real in the future, the gain has been reduced because of that higher established cost. The Bull will discuss other tax mitigating strategies in future blogs. (If you have question as to your circumstances, consult your tax advisor.) Riverplace Capital will apply these for the benefit of our clients throughout the remainder of this year, Stay steady my friends.

The Lonely Bull