Journal of Financial Planning: October 2021
My favorite movie is about an IRS auditor named Harold Crick. He is pretty boring, by all accounts, and doesn’t have much going on in his life. Then one day, he suddenly starts hearing a woman narrating his life. She starts throwing curveballs into his life to spice up the story, and he is left to deal with her creativity.
Sometimes, taxes themselves can feel like that. We don’t have much control over them, and we just need to learn how to live with the decisions from above. While most items that President Joe Biden wants to push through are still in the infancy stage of discussion, he has some ambitious goals that warrant keeping an eye on.
He has proposed increasing the highest marginal tax rate from 37 percent to 39.6 percent as well as increasing IRS funding to go after individual income tax enforcement. He wishes to tax long-term capital gains and dividends as ordinary income when one has taxable income above $1 million. That alone would drastically increase the amount of tax that investors would have to pay. But the fun doesn’t stop there! Biden wants to tax capital gains at death for unrealized gains above $1 million as well. There are also talks about increasing the corporate income tax from 21 percent to 28 percent.
There is a lot of potential change coming, and Tax Foundation has a good overview of proposed changes on its “Tracking the 2021 Biden Tax Plan and Federal Tax Proposals” page. It might be more important than ever to be the loyal sidekick to your clients. They will need help navigating the new world of taxes, and helping them stack up those deductions to get them into lower tax brackets will be your time to shine.
In the movie, Harold just deals with the narrator’s voice and antics at first, but he sets out to truly stop her when she reveals that he is about to die. Higher taxes aren’t as concerning as impending doom, but, while you may not be able to take over as the main character in your clients’ stories, you can maybe pen yourself as co-author and write a happier ending for them. Oh, and I highly recommend watching Stranger than Fiction if you want to find out what happens to Harold Crick, the “Tax Man.”
