Published Tuesday, December 15, 2020 at: 10:02 PM EST
With just two weeks until the end of the year, this is a final call to plan for higher taxes in 2021. The Biden administration plans to raise taxes. If your adjusted gross income is higher than $400,000 or if your net worth is more than $3 million, your tax burden is likely to rise next year.
Sixty-eight percent of tax and financial planning professionals expect a payroll tax hike and 45% predict expansion of the estate tax in 2021, according to a recent survey by Advisor4Advisors, a professional education provider. By anticipating the coming changes to income, capital gains, and transfer taxes and by acting before December 31, 2020, you can still limit the financial damage of the coming tax hikes.
If you are angry about higher taxes, you may take some solace in knowing that the total tax burden in the United States is the lowest of any major developed nation, according to the Organization of Economic Development and Cooperation (OEDC). The OEDC data includes all forms of taxes: federal, state and local; income, sales, VAT, estate, property, and other taxes. The total tax burden of the U.S.is much lower than Germany or Japan and other major world economies, and the return to a higher tax burden has been expected for many years, as the U.S. debt grows larger.
Business owners, doctors and dentists may be able to bunch income into 2020. That would be equivalent to a 6% pay increase on income above $400,000 AGI in 2021. It would slash the payroll tax hike in half! Meanwhile, parents or grandparents who own assets they intend to leave to the next generation or to charity, may be able to sell the assets to their heirs at highly favorable loan rates or make a charitable gift while retaining a right to income on the assets for the rest of their lifetime.
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