That's the question I asked, and answered, in my latest Estate Planning Law Report. Check it out in the recent news section of deconcinimcdonald.com and let me know what you think.
IRS: We’ll get your income tax liability figured correctly with no help from you. Trust us.
Me: Really? Thanks for the offer, but I think I have some information you don’t, and I’m just as likely to get it right as you are.
MORE GENIUS FROM THE GENIUS WHO WANTS TO TAX EVERYTHING, WHETHER IT MOVES OR NOT
When I wrote yesterday about the senator who won’t give up on taxation of unrealized gains, I gave him a little too much credit when I said that he apparently figured out that it wouldn’t work on some types of assets (he calls them "nontradeable" assets). No, he’s come up with a Rube Goldberg type contrivance to penalize you for deferring the realization of gains on your "nontradeable" assets. By deferring the gains, what he means is, you didn’t sell the assets. He’s going to fix that (you) by going back and treating the gain as if it was realized in each year that you held the asset, apparently. He still doesn’t really explain how this is going to work.
Here’s the senator’s description of this latest brilliant idea:
Tax due on gain realized from non-tradeable property such as real estate, business interests or collectibles will be calculated at sale or transfer through a lookback charge. The lookback charge would tax accrued gain and minimize the benefit of deferring tax. Senator ***** is evaluating several possible methods of calculating a lookback charge, including an interest charge on deferred tax, a yield-based tax to eliminate the benefits of deferral or a surtax based on an asset’s holding period.
No, I’m not going to link to it. if you really want to read the whole thing, it’s not hard to find.
I have written about this before, and predicted that a U.S. Senator’s proposal for taxing unrealized gains (that’s what “mark-to-market” means) would never be adequately explained. After reading about his latest pronouncement on the subject, I still think that’s the case.
I’m not sure how his new proposal is all that different from the last one. The new proposal does at least concede that taxing unrealized gains on certain kinds of assets is just not going to work, hence the limitation of the proposed tax to “tradeable assets” (whatever that means).
I’M NOT INTERESTED IN INVESTING IN AN ENTERPRISE THAT DOESN’T CONSIDER THE RETURN ON MY CAPITAL TO BE ITS FIRST PRIORITY
If I invest in a company, I’m an owner. Why would I, or any other owner, countenance that company being managed in any way other than placing a return on my capital at the top of its priority list?
What I’m talking about is simply the fiduciary duty that company managers have to company owners (stockholders). This quote neatly summarizes the problem with CEOs pledging to prioritize the interests of “stakeholders” other than stockholders:
Capitalism is not named after the managers; it is named after the providers of capital, the shareholders. Its foundation is the strict and scrupulous fiduciary obligation (“the punctilio of an honor the most sensitive,” as Justice Benjamin Cardozo said in Meinhard v. Salmon), that gives credibility to capitalism by addressing the agency cost risk of entrusting money to others. Why should investors entrust their money to people who want to turn the fiduciary duty of strict loyalty into some version of “just trust me?”
A member of the U.S. House of Representatives thinks that unemployment is a result of greed, and that the solution to unemployment is for the government to guarantee a job to everyone. The assumption is, apparently, that a tax on greedy people will produce the revenue to pay the people to whom the government will provide jobs.
You would think that a group of billionaires would know that their request for a wealth tax should be addressed to Congress, not to candidates for president, since Congress, not the president, has to make it happen. That is, however, unless their request is really just to show everyone how virtuous they are. If that is really their goal, then why don’t they just make voluntary contributions to the U. S. Treasury?
It’s not new, but it’s getting attention again: a proposed federal tax on every securities (stock and bond) transaction is being pushed by prominent members of Congress.
The proponents of this tax say it is intended to discourage high-frequency trading and won’t hurt the middle class. Since many, many middle class families have retirement accounts that are invested in stocks and bonds, either directly or through mutual funds, I have some questions:
Is the reinvestment of dividends inside retirement accounts going to be subject to the tax? If so, then middle class people are going to pay the tax.
Are transactions in U.S. Treasury securities going to be subject to the tax? If so, retirees who invest in those bonds will pay the tax. If not, that will skew the markets because Treasury securities will have a cost advantage.
I could think of more questions, but you get the idea. The simplistic notion that a tax on securities transactions will only hit fat cats and day traders is a lie, designed to gin up support for the tax among those who won’t think about how it will actually affect lots of people.
GOOD NEWS ABOUT THE FEDERAL ESTATE AND GIFT TAX IF YOU PLAN ON MAKING SUBSTANTIAL GIFTS BETWEEN NOW AND THE END OF 2025
The basic exclusion amount for the federal estate and gift tax was increased from $5 million to $10 million by the 2017 Tax Cuts and Jobs Act. That amount will increase with inflation (it’s $11.18 million for 2018) through 2025, but it will go back down to $5 million in 2026, with adjustments for inflation.
So what happens if you make taxable gifts totaling, say, $9 million between 2018 and 2025, when the exclusion amount is over $10 million, then die in 2026, when the exclusion has reverted to $5 million? Will the estate tax apply to the gifts you made between 2018 and 2025 in excess of $5 million? That’s a possibility because the estate and gift taxes are calculated using a unified schedule, and you get only one basic exclusion amount. That means you could get hit with a tax of 40% on $4 million worth of gifts that you thought were not taxable because of the higher exclusion amount. That’s a lot of tax.
The IRS has answered the question: no, if you die in 2026 or later, the estate tax will not apply to gifts you made in excess of $5 million between 2018 and 2025. The IRS made this announcement in a news release issued on November 20, IR-2018-229.
Via TaxProf Blog.
ANOTHER SENATE PROPOSAL THAT WOULD RAISE THE ESTATE TAX, BUT THIS TIME TO DIRECTLY FUND A NEW ENTITLEMENT
A U.S. Senator recently announced a plan that would give each new American baby a savings account of $1,000. Each of those children who is in a family with income under certain limits would receive an additional deposit to his or her account each year. The amount of those deposits would be progressively smaller as the family income increases.
The account would not be accessible until the child reaches age 18, and then would only be available for certain purposes, such as home ownership and higher education. Sorry kids, no Corvette at age 18 (although I haven’t seen any explanation of how the limitations on the use of the account would be enforced).
The distinguishing characteristic of this proposal is that funds for a direct benefit to one group of taxpayers would come solely from a tax on another group of taxpayers. The funds for the proposed accounts would come from an increase in the estate tax, according to the proposal.
Senators have already floated one proposal this year for increasing the estate tax, but this proposal is qualitatively different. Has the federal government ever taxed one group to fund a direct benefit to another group? I could be wrong, but I don’t think so.
The contents of this blog, this web site, and any writings by me that are linked here, are all my personal commentary. None of it is intended to be legal advice for your situation.