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The things you need to know about taxes!

What is the best tax planning strategy?

Kelly Hurd, a Tax Manager with Physician Tax Advisors, joins us to discuss the foundation for all of your tax planning strategies. As with many things, organization is the key to success. That's especially true when creating a seamless tax planning strategy. We cover some practical details of the process and some things you could potentially overlook if you don't have a systematic tax planning strategy.

Kelly's colleague and the co-founder of Physician Tax Advisors, John McCarthy, jumps in to explain why Biden's presidency could mean some BIG tax law changes in the near future. He'll also describe some of the best tax planning strategies for handling your IRAs.

We'll then switch gears to talk about contributions to your retirement accounts, including the SEP-IRA. We also get into the changes with the CARES Act in 2020. Last but not least, we talk about itemizing, deductions, and keeping track of charitable contributions.

As a result of these tips, we hope to encourage you to use the best tax planning strategies and take control of tax season!

Here's What You'll Learn

  • What a missed deduction could mean for your finances
  • We look at IRA options as a W2 employee based on income level
  • How do you move from a Backdoor Roth contribution to a SEP-IRA 
  • Our guests discuss tax law changes that will affect the market and volatility
  • Now that Biden is in office, what do our future tax laws look like
  • Who should be concerned about the possible restoration of an income tax rate of 39.6%
  • What does a change to social security tax mean for earners over 400k
  • We’ll help you understand the capital gain dividend rate adjustments
  • Potential changes with itemized deductions
  • Does revising the corporate tax rate affect you

Curbside Consult

In this section of the show, Ryan answers a listener question from an anonymous caller.

The caller is concerned about how COVID-19 is affecting the housing market. She's looking ahead to when she’ll need to sell her house to transition from residency to fellowship. Her dilemma is whether to sell her home in 2021 and rent for a year or hold on with the risk that the value might drop and the interest rates could go up.

If you'd like to hear the answer head to *33:26* and listen!

Financial Malpractice

[INSERT GUEST] from [INSERT COMPANY] joins us to share how to avoid financial destruction when upgrading to a new attending lifestyle!

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Tune in at *[INSERT TIMESTAMP]* to listen to this nightmare for physicians!

Ryan Inman

Okay, I have us recording Can you guys each just say something just to make sure I haven't. I am grouped. So I thought you're going live and so it's funny. Okay, though, we still love you, John. Alright, so I'm gonna do the intro and go through the disclaimer and a bunch of stuff and then I'll come to it. Takes like two minutes, so I apologize.

Okay, I'll start in 3,2,1 What's up everyone, welcome back to the Financial Residency podcast. I'm your host, Ryan Inman, and really excited to be jumping into this topic, we will make it fun, I promise, but we're going to be going over a bunch of stuff in the tax space that you need to know and understand also, what is coming up potentially with Biden's changes to his tax policies. So I will have two very special guests on to discuss these things. But before we get into it, let's hear from today's sponsor.

All right, remember that this show is for entertainment purposes only. It is not specific financial planning, investments, or even tax advice. So reach out to your CPA, your attorney, or your fee-only financial planner, if you don't have one, I know that these two amazing individuals would love to be your CPAs as they work with us at Physician Tax Advisors. So let's jump in and hang out with our special guests. All right, Kelly, John, what's going on? How are you guys doing?

John McCarthy

Well, good. Yeah.

Ryan

So Kelly works with us as a tax manager at Physician Tax Advisors, and of course, you guys all know, John, he was on all month of August, breaking down some cool tax stuff. We actually, surprisingly, to my amusement and also surprised, everyone loved the whole month of tax. I didn't know how that was gonna go over. We just tried it, but everyone said they learned a lot, we actually had a lot of questions, a lot of feedback that came in, and maybe some of you weren't as excited to learn about tax in August. So we're gonna do a recap a little bit here on some of the things that you should be doing or thinking about or organizing. Now that the year is done, we are in a new year. Kelly, I think, why don't you kind of spearhead this, and tell everyone kind of like what they should be paying attention to and how they can make it easier to prepare their taxes or work with someone like you guys in preparing their taxes.

Kelly Hurd

Sure. So I think you kind of set it, I think one of the greatest missed tax planning strategies is being organized. There are so many things that might be missed if you're not keeping records. If you're itemizing charitable deductions, having those receipts in line for when you go to see your tax preparer. Or for us, if you're uploading for us, as you know because we're virtual, you're not coming to see us hopefully, or things like if you are a 1099 contractor, so you have your own business, keeping track of those receipts, having your expenses in an Excel spreadsheet, or in a QuickBooks Online, something like that. Having all of that ready and organized, can save you so much time and effort. You know, you don't want it to be April 14th, trying to gather things missing receipts and things like that, which are missing receipts or miss deductions for you. So I think organization is a big tax planning strategy now since the year has closed.

Ryan

Yeah, Miss receipts equal Miss deductions equal, you paid Uncle Sam more money than you had to, and guess what? They're just going to waste it. So let's not pay them any more than we have to. Let's be good taxpayers and pay them right, but let's not just offer like charity, I'd rather you just give to charity at that point, which we did have a change in 2020 that John had brought up back in August. I know, I know, I brought it up a few times throughout the years that with Cares that even if you were WT you weren't itemizing that you could give $300. So this might have been the first time that someone did that. What if they're working with you or doing it themselves? Like what do they need to have in terms of that, that receipt, or what would that look like?

Kelly

Yeah, so this is a pretty nice addition to the Cares Act. So even if someone's not itemizing, they can still take a $300 deduction for anything they've contributed to a charity. So for us specifically, we would like to see the receipt of that. So I know now we do a lot of donations. Maybe you're putting in a credit card online, but you have an email that would be your email receipt showing the amount that you donated with the date on it, that would be something you'd want to keep So that we could see that you had made this donation in the year.

Ryan

So besides organizing now that they're like, okay, let's say that they were going to use this liberally, that they were somewhat organized and had been, you know, keeping track of this stuff up to date, or other things that they could be doing to help their either their prepare, or to just honestly be aware of now that the new year started, and they're kind of jumping into tax mode and even financial planning mode because it's New Year's resolutions, but we could stick with the tax side.

Kelly

Yeah. So I think one big thing that I'd want to point out for someone that is self-employed or has 1099 income they have for certain retirement accounts, they can make a contribution up until the date that their tax return is due. So it's not as if 12/31 hit, and you are done tax planning, if you have 1099 income or self-employment, you still could possibly make a deductible contribution to that account, specifically, I would speak of a SEP account. So if you have a SEP IRA you actually don't even have to have the account open, you can still open the account this year, you can open the account, and you have until the due date of your return to fund it. So if your return was due for 15, but you extended You have until the extension to fund that account as well as open it. So I like to harp on that because I think a lot of people think 12/31 years done, you can't there's no more wiggle room, but there is specifically for that aspect. And also, even if you're a W2 employee, there are a few options. You have IRAs. John, did you want to talk a little bit about that?

John

Yeah. So on the IRA side, there are a couple of different types of IRAs that're available for taxpayers. A lot of it depends on your level of income per year. So this is where you want to either do some reading on the IRS publications or work with your tax preparer here to make sure that you don't make an excess contribution to an IRA that you're not allowed to do, but depending on the retirement plan options that you have at your workplace, and potentially what your spouse has available to them, you can either make a traditional IRA deduction, which could be deductible or non-deductible, depending on your tax situation or potentially a Roth IRA contribution as well.

So once again, there are all have different income limitations, and they're the contribution amounts are going to be different depending on your unique situation. So make sure you do some studying on that before you contribute to them.

Ryan

Yeah, you brought up a good point with the CEP concept. And I'd say a word of caution, is that if you had done a backdoor Roth already for, let's say, 2020, and then you're now trying to make a SEP contribution that could cause some issues in there. So be careful, but if they did make any of these mistakes it can be unwound, it's just not fun, or enjoyable to make these things, but there are strategies, and everyone's situation is different.

I think that point I was trying to make is really just, this is again, information. It is educational advice. This is not specific advice, so if you've done some of these things that might make it so you cannot do some other things that we may be talking about on the show here. Is there anything else that they could be looking or thinking about doing? You know, now that we're in the new year?

Kelly

I did think of one thing when John was talking, as we said, with you have until the due date, with your contribution with retirement contributions, you also have until the due date of your return to find an HSA, which can help reduce some tax liability if you fund that up to the maximum limit.

Ryan

Yeah, HSA 's are one of my favorite accounts, unfortunately, I don't have the ability to use one., but they're triple tax advantage. I've talked about it on the show before. They're fantastic accounts.

So John, let's segue over a little bit to what's going on in the tax landscape with a Biden win, that could come with some potentially massive changes to the tax code and what we're looking at. I think, to understand it let's start from the 50,000-foot view and kind of cascade down what potential changes would be coming? And what should we be aware of?

John

Yes, what we're talking about new tax legislation is kind of set the scene a little bit and, you know, how did we get here, and why are we worried about some of these issues in the first place?

So obviously, we've just gone through an election period. So we have a new president that will be coming on board, and with that comes the threat of tax law changes normally. So we're fairly certain at the time we're recording this the presidential election in the House of Representatives. What we're not certain of currently is the senate race. So we've got some runoff elections that are going to be happening in Georgia, which is probably going to determine the overall structure of the Senate and who will be in control of that chamber of Congress. So one of the important things to keep in mind here is that your tax legislation moves a lot easier, a lot smoother through Congress, and through the executive, chamber, if, if there is one party that is in charge of all three. So if the democrats have the presidency, they have the house and they can gain control of the Senate, obviously, they can push through legislation a lot easier than if they're missing one of the three components. That's part of what we don't know today, as we record, this, is how the Senate races are going to end up. So I want to keep that in mind as we talk about some of this potential legislation, because, you know, some of these are big changes to tax law, and we got to temper our expectations a little bit in that, you know, we can't necessarily count on these changes becoming law, because a lot has to happen and fall into place. Before that would be the case.

So let's set the stage there. beyond just the makeup of our Congress, we have to look at you know, what is the likelihood actually, that we would start with tax law changes. You know, once again, as we record this, we're in the middle of the COVID pandemic, we have other national priorities going on right now that perhaps aren't as exciting as the word. But, you know, may not be as exciting as changing tax policy at this point.

Ryan

Biden is going to be a little busy with some of the wear your damn mask policies, and then tax, but I think that's a good point, I'd love the disclaimer of our leaseback history of like, here's where we're at and why we're here. But let's assume that we're not at 100,000 deaths a day in January here is what we're recording, and that this is starting to become under more control, and that we are now addressing the tax policies that could be coming down the road. What some of those policies look like?

John

Yeah, so there's a couple of big changes in the proposed Biden plan that we wanted to go over today and talk a little bit about.

So one of the first ones is and you'll see this a lot in the news media that they'll pick up on this is one of the primary changes potentially, we'll talk a little bit about why it might not be the big one that we should be worried about. But Biden is looking at restoring the top income tax rate to 39.6%.

Ryan

So if you are a tax law scholar, maybe not all of knowing much about tax. Maybe Kelly and Kelly's maybe even there. So you know, reads the stuff for fun like you do, John. So we are novices and not scholars of reading the tax code as we progress through the conversation.

John

Alright, if you insist, but we were at a 39.6% rate before the TCGA. The tax cut and JOBS Act were passed back in 28 for 2018. tax year. So we've been here before. You know, it's not that unprecedented. But we're looking at moving from what was a tax top tax rate under current law 37%. And moving back to back to the future, I would say of the 39.6%. rate. So that’s one of the big changes, you'll see that picked up in the news media quite often. But as we'll discuss a little bit later, it's actually when you look at overall tax receipts and how big of an impact this is to tax revenue for the government. This actually isn't the big biggest one that we should be worried about.

Ryan

So at what income level, let's just and you can let's just say joint income, married filing jointly, what threshold does that actual tax rate occur? Because I think that also is helpful for everyone listening that some of you may be impacted, but on everyone.

John

Yeah. So it does it. It's indexed for inflation each year. So I'm going to use round numbers here, but it'd be around $120,000 or so rollover when you're looking at it from a married filing joint perspective.

Ryan

Yeah, so a lot of you that are residents and fellows, you don't need to worry about this. A lot of you that are early career attendings in specialties, that you're not either dual physician households or specialties that are not extremely high gain. Again, this won't really apply to you.

John

Yeah, it's a really good point, Ryan that you've had That this is supposed to be a very targeted tax increase, and the tagline that you'll hear the democrats use is that we're not raising taxes on anybody above $400,000 of income. Now, they say that it's a little easier said than done. So there are some exceptions on where some people are lower-income level than that might get impacted. But it's fairly well crafted at this point to only be, you know, let's say, the top 5% or 10% of Americans that would be impacted by this.

Ryan

Unfortunately, I mean, that's who's listening, right? If you're an actual practicing physician you're now kind of tart, which is, I think, okay to be paying taxes, I don't enjoy paying taxes, but like to understand that from a financial impact, that you're considered in this top 1% or 2%, and that when they talk about increasing taxes, that is you as an attending physician, that is who they're talking about, again, we should all pay our fair share. I think we, need roads and schools and infrastructure and police and whatever, but it's, then when we make dumb mistakes with our money, like smashing all our receipts and missing deductions at the end of the tax season on April 14, that's not a good thing. So we don't want to give them more money than we have to but to just understand that when we see this in the media, and you read about it, that they are really targeting the upper household’s income, and that is going to include almost every practicing physician

John

We’ll go to the next big change that they're talking about at this point. And this is a change to Social Security tax. So you may be familiar, if you looked at your pay stubs midway through the year, you might have noticed if you're a higher income earner that Social Security tax stops being collected, at some certain point during the year on your pay stub. Once again, this index is for inflation, I think this year was around $135,000. somewhere around there. You know, after that point, really quick, tell them

Ryan

Why does that stop? Why does that cap hit?

John

So yeah, it's a legislative path, basically, and that, you know, any income from wages that you earn above that level is no longer subject to Social Security tax, that's why you see that withholding go away on your pay stub.

So the big change here is that we're going to kind of have one of these things that we like to call affectionately a tax roll a doughnut hole issue, and what we're going to see is that people between, you know, this $135,000, let's say rounded up to $400,000, still are not required to pay social security on those taxes between those two numbers. Now, what happens above $400,000 is where we get the tax increase. So once your wages are in excess of $400,000, that Social Security tax is going to come back, kind of like a bad dream. At that level, and this is the one that actually is going to have the largest tax increase that's part of this proposed bill, second only behind some corporate tax changes that they're looking at, but this one is designed to generate about over $800 billion of revenue. And it's about 30% of the overall tax increase that we're seeing with this bill is right in this one particular area.

Ryan

So to understand that correctly, those that make up to $135,000, nothing changes, you're always gonna be paying that in, and then any dollar you make between the 135K, 2, or 100, there's no additional tax, everything works just as plan. Currently, nothing changes. But when you hit over 400,000, that tax now comes back into play, and what's the effect of the rate of that tax?

John

So it's 6.2% for employees, and then the employers get kicked in with that tax as well. So your employers actually pay half of your Social Security tax, so they get another 6.2% that they have to pay. So in total, it's 12.4%.

Ryan

Yeah, I understand that from a private practice standpoint, is that not only will this come back in and really affect your employees that are earning a high-income wage is that now this is going to be a large expense added. I would effectively still call you small to medium-sized businesses, that is going to stink, and that is a huge impact on your future cash flow potentially investments and new hiring and everything like that. So we might see an interesting compensation structure around this but John basically just says, and there's no upwards cap doesn't like scale up if you hit a million in revenue or anything like that. It's just now that you're over 400K, now every dollar over that is taxed at this new 6.2%.

John

Yeah, there's really no high-end cap on this. I think what they're thinking from a legislative perspective is that anyone that gets to be, let's say, above a million dollars in wages, probably have some room to restructure their employment agreement in such a way that they can probably do something to help alleviate anything unless you're working for a big publicly-traded company where you're making multi-million dollars salary.

Ryan

Yeah, and then, I have the world's smallest violin playing for you.

John

Alright, so the next big change that we'll talk about is a change to the capital gain and dividend rate. So this one also, this is another one that will probably get a lot of news media play, it's a significant change as well, not quite as big as the security change that we've talked about that generated about $800 billion in revenue. This one's around $500 billion, let's say. So, you know, it's still a big change, but not quite as big as this issue.

Ryan Inman 21:08

That sounds like a ton of money, right? $800 billion and $500 billion. Sounds like a ton of money. If we just add those two together, and you times it by two, that's the amount of money that they injected into the economy in 2020 alone. So it sounds big, it's still ain't that big. So the idea that Oh, my gosh, they're raising taxes and this and Oh, look at that we're gonna be flush with cash, like, No, no, no, we're gonna still have trillions and trillions and trillions of debt. But sorry, I just want to put some perspective because those seem like massive numbers, but in reality, what they've done, is not that massive.

John

Yeah, that's a good point.

Ryan

How are you going to crush my soul with?

John

All right, so if you make over a million dollars a year, if your income is over a million, we are going to remove what effectively for people at that level would be at 23% capital gain rate, which includes a couple of different taxes, but we'll simplify it here for this purpose. A 23% rate is now going to go to a 39.6% rate. So essentially, what we're doing is we're saying make over a million dollars a year, there's really no additional incentive to earn income through capital gains and dividends now because we're basically taxing it at what your ordinary income rates are.

Ryan

But that's only into households that make a million or more a year. Okay, so that change isn't as horrible as it sounded like it could have been when we started reading a little bit of that because if they did it effectively for everyone, or even at the 400 K level, that would fundamentally change a lot on how you invest. So at least they, I mean, let's be real, though, a lot of the money that is invested is by massive entities and extremely wealthy people. So this could have fundamental impacts on the market in the short term as they try to figure out what they're going to do and how they're going to do it. Do they unwind it? Which I have, John, the question for you is, if this does come into effect sales sign, I don't know, I'm just throwing out an arbitrary June 1st, 2021. Is it going to be retroactive? Or is it going to be taking place on a future date? Like starting January 1st, 2022?

John

Yeah, that's a million-dollar question, and the answer is apparently the million-dollar threshold. We're just, that's right. The answer is like all good tax policy answers. It depends. So there are a lot of options here. I would say in recent memory, Congress generally will shy away from making changes this significant on a retroactive basis. So the last time we had a major tax law change back in 2018, for the TCGA rules, they did not choose to make those retroactive at that point, with some minor exceptions. I would say that they weren't necessarily retroactive, but they applied right at the date, which was in the middle of the year.

So there are a couple of options for retroactive, which I would say is probably unlikely. They could also make it effective as of the date of the law passing Congress, which, you know, we like to call those things as tax accountants Full Employment Act for tax accountants everywhere, because if you think taxes are complicated Now, try changing all of the rules in the middle of a tax year, and trying to still fit that on one year's returns. It's possible, but they generally don't do that.

Ryan

Yeah, I mean, and I'm hoping that they don't bury us at the very end of the year with a 1200 page document saying, enjoy the holidays. I'm hoping that doesn't happen again.

John

So to get to a real answer to your question, I would suspect that it would probably take place in a calendar year period and that we would be looking really at 2022 if we were to see these changes, you know, these wholesale changes in place, but never say never.

Ryan

Yeah, I mean, they could come back and be like, hey, as of January 2021, because the pandemic wasn't enough to screw with everyone we're gonna. So attacks go to, and just from the financial planner perspective, that this if it is really that million-dollar threshold that will impact the markets and there will be short term volatility, and we don't want you to trade on the short term momentum, either way, are having anxiety over short term movements.

I would expect that there will be some volatility, whether it's up or down, probably both, at some point, that people will be exiting trades that they've had for long positions in order to handle and get the lower tax rates because if they're sitting there with millions of dollars in gains, are you thinking like wealthy, wealthy individuals, they're not going to be very excited to pay an extra like 15% 16% in tax, just if they wait and hold out. So they'll probably recognize those gains, and that might increase the trading frequency and volatility so well, that's really I mean, at least you didn't crush my soul completely, but that's an interesting change. What else do we have from a change perspective?

John

So one of the other changes we're looking at potentially is some changes to itemize deductions. So once again, this is another one of the provisions that are only going to impact families that are making over $400,000 a year. As we've heard in other areas here of this potential tax law, and what they're looking at doing is basically giving you another haircut on your itemized deduction. So this is your mortgage interest, real estate taxes, charitable contributions. If you're making over that amount, they're basically going to say, Hey, you know, if you're in the 37% tax bracket, we're not going to give you that full credit, we're going to treat it as if you're in the 28% tax bracket. So they're basically here cutting the value of those itemized deductions going forward.

Ryan

Yeah, that hurts a little bit, because that is going to impact a lot more of you listening, and no, it's not very fun. That's not good news.

John

Yeah, I mean this is stacked on top of already with TCGA, a lot of you have been hit by, you know, the state-local income taxes being a haircut already, the only $10,000 a year. So, we still got that to deal with, and now they're saying, hey, even what's leftover now is worth less potentially going forward.

Ryan

Yeah, I felt like 400K. I mean, it's frustrating, but it's probably a good sweet spot for them. Do you have the numbers on how much revenue that piece would change for them with the itemized deductions?

John

Yeah, let me take over. Yeah, it's not insignificant. It looks like to their score, carding that out to be about $280 billion. So I mean, it's not nothing. You know it's not as big as some of the other changes we've talked about. But yeah, it will hurt.

Ryan

Yeah, so 800,000,000,200 80 billion is called 300 billion 500 billion here. So now we're at 1.6 trillion. So we're half of the monetary piece that they've put in just for 2020 alone. We're getting closer to being able to pay some of this money back, and that we're not even talking about potentially more stimulus. We're just talking about what's currently been put in place. Is there anything else that is majorly changing that we should really kind of discuss on the show here?

John

Yeah, one other item, I think is worth discussing, that we won't hit the big one, the biggest change here is the corporate tax rate. We'll assume that that doesn't apply to as many of our audience as you know, it might own a C corporation out there, but they are looking at raising that tax rate that would produce $1 trillion of revenues. So that would get us a lot closer to the overall revenue-raising of this whole bill.

Ryan

But then to make sure we're crystal clear on that, we think of this as like much larger public corporations that you would know household brand names that they're trying to not only not give them a tax cut, but hey, it's time for you to pay your fair shares. They're kind of calling it so we're talking about potentially a trillion dollars, they're now 2.6 trillion. If that actually was to take place. We don't need to unpack that one because it's not really applicable, but we're at 2.6 I'm trying to keep track of just what they're actually trying to do.

John

Yeah, so the other one I really want to make sure we unpacked a little bit today is the changes to the estate tax rules. These are pretty severe. You know we all don't like to think about worrying about estate tax a little, you know, if you have that much money to worry about it. It's a good thing. Make your estate taxes relevant again.

Ryan

What are they doing right now? I mean, we’re what? 24 married couples of 22 million? I mean, look, we're not worried about estate planning at this point. But does that come into play?

John

No, that is going to come into play, I think for a lot more people potentially. So we've got two big changes in the estate tax area that we need to be concerned about. One is we're looking at returning the estate tax exemption down to like pre TCGA levels, around three and a half million dollars. So we were at 10, 11, you know, they're indexing it for inflation, putting it out of reach for most of our clients, but you know, 3 million with a position salary is not that much.

Ryan

Now it impacts every single one of you listening, right now they're like, which is again, okay, but just to be aware when you hear these things, and you think it's for the Bates and the Gates and the Buffets of the world, it isn't like that estate planning actually is gonna kick into every single, I don't care if you're a pediatrician, and we practice dermatology, whatever, every single one of you will be affected by that one, if that was to take place.

John

And so amounts over that, as still left in your estate at that point, the maximum rate goes back up to 45%. So estate planning is really going to be important at that point. We don't want stuff at the state level above that level, because that's going to be expensive. The real kicker here, though, to be honest, and this is kind of the first time we've heard this idea kind of floated really, recently would be eliminating the tax-free step-up at death row. And I was not, that's no point.

Ryan

I mean, that just turns all of our conventional estate tax planning pretty much on its head, and if this were to pass we've got a lot of things that would have to happen before we get there, but if that does, please go see your financial planner and your lawyer. We need to revisit all of the assumptions that we made. So we got a lot of work to do.

So John, I obviously understand the impact of this. But let's break that down a little bit for everyone listening. Why would they need to go reach out to someone like me? What is that impact actually going to do when they change this stuff up?

John

Yeah, so if you have any assets that don't pass directly to a beneficiary, like an IRA, or 401k, where you generally those assets are going to pass directly to whoever your name beneficiary is. So if you have things like your residence, or if you have a taxable stock portfolio, and perhaps, generally when that stuff passes to your heirs, you're allowed to value it again, at the date of death, and that becomes their new cost basis. When we were talking about cost basis for saying, hey, if you were to sell it that same day, and you sold the stock for $100, and the person got it from passed away, it was worth $100, the day before, you don't owe any tax on that sale. So that step up a basis is pretty important.

Ryan

Yeah, so let's say mom and dad bought a share of Apple back in the day for 20 bucks, and now Apple is worth $400. I don't know, let's just throw it out there. You would know a lot of tax on that one share, right? There'll be $380 of gains, and we got rid of gains, like you know, there's this whole domino effect. But if mom and dad were to pass, the step-up basis would allow you to come in basically valued at exactly where it was when they died. So like John said, if they died, and you sold the next day, there's no gain. What John is now saying is that goes away, and you're going to inherit their basis.

John

Yeah, they're basically eliminating the step up and basis. And so essentially, they're taxing all the appreciation, no way to get out of it anymore. So

Ryan

Would you liquidate the position, because most people aren't going to have that kind of money just lying around? If mom and dad or you left your kids, let's say, this kind of money, they're not likely going to have that. They'd be forced to liquidate and to do that, and I mean, this is huge tax implications, huge estate implications, it is going to potentially cause increased market volatility as the boomer age kind of gets older. This could have very profound effects. It sounds simple, but that to me is like the largest change, maybe not dollar for dollar, but it is the largest change from a planning perspective.

John

Yeah, definitely is. And, you know, unfortunately, from a tax planning perspective, you know, there's not much we could do in the near term on gifted out, right.

Ryan

Did they change anything with the gifts?

John

I haven't seen anything related to the gift tax provision. So yeah, it'll be interesting to see how they would weave that in and see if there are some changes related to that as well because you'd almost expect there to be some changes in both areas, but we don't have that detail yet.

Ryan

Because there's a lifetime cap of how much you can gift right? At some point, there might be some gifts that exchange back down maybe for a closer or whatever. But this is, this is a huge impact on taxes.

John

So from a tax planning side, you know, if this comes to pass, and we have a date of January 1 2022, you know, the only tax planning we can say is it's better to die 2021then 2022. But that's not really popular tax advice. we all give

Ryan

Emily Kelly's face just lit up like a Christmas tree. But John, I get the joke axiom.

John

We have to entertain ourselves and something here, guys and gals,

Ryan

He reads the tax code for fun. So that is a good joke for John. Not gonna lie. Give it a five out of 10. Well, that John, that's some crazy amount of changes. Thank you for saving the big one. The knowledge of that makes my heart hurt a little bit. Not gonna lie, at least you didn't damage it completely as we were going through all of them.

For everyone listening like I want you guys to really be able to take home this concept that lots of things could change. We don't know where we're at. We don't know what's happening. We don't know if they're gonna be retroactive there. So don't worry. There's nothing you can do. Right? What's in is that the policymakers are going to do their thing, but it's really helpful to understand the direction so you can be more informed. So when you hear about it on media, you read about it on a blog post, or someone tweets about something stupid, you can at least be somewhat informed to understand go, okay, nope, I heard this like this affecting not even affect me, it'll affect this. At least you have some understanding of it.

I think we'll bring you guys both back on to talk more tax changes and more things as this unfolds and what I think when anything does happen to get signed into law and passed the branches. We've got more information and will definitely bring you guys back on. So, Kelly, you're amazing. Thank you for coming on. I appreciate you and all the work you're doing with all of our clients as a tax manager, physician, tax advisors, and, John, it's always a pleasure to have you on so thank you both for your time

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Ryan Inman

Ryan Inman