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  • Writer's pictureRobert Dunn, CFP®

Tax Landscape Is Changing

Updated: May 26, 2022

Key Takeaways

  • While the Biden tax plan is yet to be passed, affluent and successful people will most likely be paying more, not less, in 2022 and beyond.

  • Higher taxes on capital gains, employment income, business income and taxable estates are all on the table, and not all proposals have the same effective dates.

  • If you earn less than $500,000 a year (and don’t have a huge windfall in the works), the short-term pain should be minimal. But that doesn’t mean you should become complacent.

You’ve worked very hard to achieve a successful and comfortable lifestyle. Unfortunately, affluent and successful Americans like you are exactly who are in the cross hairs of the new Biden tax plan. Don’t take it personally. The new tax plan is designed to address widespread income inequality in America and to help level the prosperity playing field.

This much we know: Income tax rates for those with the highest incomes will likely increase starting in 2022. Further, loopholes such as the carried interest preference and the like-kind real estate preference will be eliminated for those with the highest incomes. Reformed taxation of capital gains income would even the tax treatment of labor and capital gains income for the wealthiest and eliminate a loophole that lets substantial capital gains income escape taxation forever. For more, see General Explanations of the Administration's Fiscal Year 2022 Revenue Proposals ( (Start on page 66)

At Novi, we are dedicated to providing you with the knowledge and support to minimize the tax impact on your livelihood. Without getting too political here, our two-party political system is designed to keep taxes in check and to provide the greatest amount of prosperity for the greatest number of people. But the often-contentious debates over policy—combined with the last-minute passage of new legislation--can make it extremely challenging to plan ahead and to keep your taxes as low as possible.

Knowing where you fall within the spectrum of tax proposals and how those proposals will impact your financial future can help prepare you for the changes as well as minimize the impact to your personal financial situation.

There are many potential changes to the tax law. Lower- and middle-income folks will generally be better off, high earning individuals or families will face an uphill battle. The link above provides extensive detail about how the plan benefits the mass affluent and lower wage earners. It also details all the proposals designed to increase revenue to offset the additional expenses, hence reconciliation. The primary purpose of this post is to cover major tax changes for high wage earners or for people who have amassed significant unrealized gains and would like to keep their taxes as low as possible.

Income Tax Bracket Change:

Currently, individuals making over $523,600 a year and couples making over $628,300 a year pay 37% tax on any earnings. Under the Biden tax unmarried individuals earning over $452,700 and couples (filing jointly) earning over $509,300, would now pay 39.6%. Not only is the rate higher, but you would be paying more tax on a larger portion of your income effective December 31, 2021.

As mentioned earlier, many of the Biden tax changes are intended to minimize tax loopholes for the wealthy or to change the optics over tax maneuvers that disproportionately benefit high earners and high net worth retirees.

Changes to Taxation of Capital Gains:

The proposed changes to capital gains taxes will affect many more of you reading this post.

Most investors pay 15% or less on their long-term capital gains (i.e., investments held over 12 months), But when your income is over $477,000 a year, you get hit with another 5% tax on long-term capital gains. In addition, earning over $250,000 and individuals earning over $200,000, must pay the additional 3.8% net investment income tax (NIIT), brining your total capital gains tax to 23.8%.

The Biden tax plan proposes raising the tax rate on long-term capital gains for Americans who make more than $1 million in a year to 39.6% from 20%. With the additional 3.8% tax, the highest-earning Americans could be paying a total tax rate of 43.4% on profits from long-term investments. That’s right, nearly half, add on your state taxes and you could easily be there or above.

That would be the highest top rate since the 1920s, according to the Tax Foundation, and the proposal could make the rate on investment gains similar to the rate on your working income.

Managing the new tax landscape

Dealing with the proposed changes requires astute investment implementation. Capital gains are only an issue when you choose to sell an investment in a taxable account. If you sell an investment in a qualified account, there is no tax at the time of the transaction. For high-net-worth individuals, the idea of long-term capital gains goes away.

How to manage the issue? For years we have been implementing portfolios using two investment implementation strategies; something called “tax location preferences” and tax loss harvesting. Tax location preferences provide the ability to invest multiple accounts as one. Each account remains independent but the implementation keeps the assets divided. We then place the highest current dividend paying investments (ie: real estate) in the qualified account and the lowest dividend paying but a higher growth asset in the taxable account. This strategy may become more of a challenge for the highest earners. However, there may be other techniques that can be used to minimize gains, such as active tax loss harvesting. Under the new plan it is going to be important to plan ahead and for longer time periods so you can avoid the capital gains in your highest earning years.

Estate Planning or Gifting:

The proposal does not include any specific changes to estate tax law. Just remember that in 2026, the current federal estate tax exemption of $11.7 million per person was set to drop to $5 million in 2026 (with inflation adjustment). But President Joseph Biden has called for the federal estate tax to revert back to its 2009 level: $3.5 million per person. That change could come to help pay for fighting the pandemic and the infrastructure build out he’s promised. This will indirectly affect many strategies that would be considered to reduce a tax bill for high-net-worth individuals or families.

Additionally, under current tax law, you may give an asset to another person and the basis for that asset (assuming a gain) would move to the recipient. Also, when you pass away, any gain on an asset not in a qualified account receives a step up in basis. In other words, the person that inherits your asset could sell it the day after receiving it and not pay any tax. That will still be the case for the majority of people, but the step-up treatment will be limited to $1 million in capital gains per individual. So, if you are married, you may transfer up to $2 million and receive the step-up in basis.

Another major change to follow is how gifting to certain trusts or to another person may change. Doing so may now be deemed a “transfer event” that would require you, the donor (the person making the gift) to pay tax on the unrealized gain at the time of the gift.

The timing of this particular change is unique to many of the other rules. It is currently stated that this change will be retroactive to the date of the announcement. This makes it very difficult to minimize, or avoid, the impact of proposed changes. You could attempt to make gifts now or realize some gains, but if the new rules don’t get passed, then you may have realized unnecessary gains. You would also be taking the chance that the proposed start date will be used.

Business assets

The last point relates to real estate that is owned for business purposes. For people that have attempted or considered like-kind exchanges, there is a proposed limit of $500,000 per individual or $1 million per married filing jointly.

It should be noted that there are provisions in the plan to increase and improve account reporting and tax compliance. I know it’s hard to believe but the U.S. tax code still works primarily on the honor system. Reporting has improved tremendously over the years, so there are limits to taxpayers avoiding paying tax on income received, but there are still many that obfuscate the tax code.


Poet Maya Angelou was famous for saying: “Hoping for the best, prepared for the worst, and unsurprised by anything in between.” It’s not a bad plan to have a strategy for tax planning or life in general. Normally we don’t get ahead of proposed bills before they pass, but the timing of this bill, and the method considered for approval, encourage us to hope for the best, but be prepared for the worst. If you or someone close to you has concerns about your tax or estate planning situation, please contact us any time. We’re happy to help.


ROBERT B. DUNN, CFP® is the President and Managing Partner of Novi Wealth


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