FAs Must Prep Clients for Tax Changes: BNY Mellon Wealth Execs

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Advisors and their clients should be prepared for the possibility of tax changes based on proposals in Congress, according to BNY Mellon Wealth Management executives.

“The first thing that probably will happen is that the maximum tax rate will be raised from 37% to 39.6% for people that are over a certain threshold,” Jere Doyle, senior vice president and estate planning strategist at BNY Mellon Wealth Management, said Thursday during the firm’s mid-year tax webcast.

The top individual income tax rate would be raised to 39.6% for taxable income over $450,000 for married individuals filing a joint return, $400,000 for single filers, $425,000 for head of household filers and $225,000 for married individuals filing separately, Doyle noted.

Additionally, Democrats are interested in taxing capital gains and qualified dividends as ordinary income, according to Doyle. Those gains would be taxed at ordinary income rates to the extent that the taxpayer’s taxable income exceeds $1 million, or $500,000 for married individuals filing separately, Doyle said.

Democrats would also like to treat transfers of appreciated property by gift or at death as realization events, according to Doyle.

“If you transfer a property, that would be a realization event, you’d have to pay tax on the embedded gain,” he said.

“If you die with property that has appreciated, you’d have to pay the income tax on that at the time of death,” he added. “That would be in addition to the estate tax. So, if the estate tax and the income tax did apply, the estate tax would give you a deduction for the capital gains tax, but your effective rate could be as high as 64%.”

Doyle also offered advice to advisors and their clients to implement now.

“If you haven’t used your $12 million exemption, use it before you lose it. Take advantage of the depressed market values that we have right now to make transfers to get the appreciation out of your estate,” he said, referring to the 2022 estate tax exemption of $12.06 million for singles, which rises to $24.12 million for married couples.

“And most important, build flexibility in your plan in anticipation of some of the proposed changes. There’s a lot of uncertainty out there. We don’t know what’s going to happen. We have to plan for that uncertainty,” he added.

Investors should also utilize tax loss harvesting, according to Terry Sylvester Charron, senior director for BNY Mellon Wealth Management’s family wealth investment advisor group in the New England region.

“Looking at the market there’s a lot of volatility. Take advantage of it, use it to your favor and start harvesting losses if you haven’t already done so,” she said. “I would act sooner rather than later on that front.”

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