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High Net Worth Webinar Series - Tax Planning and Update for 2022
The document outlines a webinar focused on tax planning and updates for high net worth individuals in 2022. Key topics include recent legislation affecting taxes, strategies for estate planning, and year-end tax strategies. The document also discusses various tax proposals, exemptions, and ways to leverage current tax laws for wealth preservation and growth.
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High Net Worth Webinar Series - Tax Planning and Update for 2022
- 1. December 8, 2021 HighNet Worth Webinar Series Growing Wealth & Preserving Your Legacy Tax Planning and Update for 2022
- 2. Welcome 1 • A FewKeys to Getting Started… o Depending on the length of this session, you will be eligible for up to 1 CPE credit for participation. o You must reply to at least 3 polling questions to confirm your participation to receive the full credit. o You are in listening mode only and today’s session is being recorded. o You will have the opportunity to submit questions to our presenter by typing your questions into the Q&A pane from the control panel. o Please complete the electronic course at the end of the webinar.
- 3. Our Presenters Partner &High Net Worth Practice Leader Patrick Daly Partner Mary Delman Partner Ronald Hegt Director PJ Manchanda
- 4. 05 06 07 08 01 02 03 04 05 14 26 36 3 General Overview ofthe N ew Legislat ion Es t a t e Pla nning U pda t e Year- End Tax Planning St ra t e gie s Quest ion & A nsw ers Agenda
- 5. Polling Question #1 Areyou interested in receiving CPE? a. Yes b. No 4
- 6.
- 7. into 2021 Tax LegislationUpdate Summary • Legislation Passed o Consolidated Appropriations Act of 2021-signed 11/28/2020 o American Rescue Plan Act-signed 3/11/2021 o Infrastructure and Investment and Jobs Act-signed 11/15/2021 • What’s on the Front (?) Burner o Build Back Better Bill 6
- 8. into Consolidated Appropriations Act •Extended CARES Act employer credit for paid sick and family leave to eligible wages paid through 3/31/21; (more later) • Extended CARES Act Employee Retention Credit to 6/30/21 (more later); • Codified tax deductibility of PPP related expenses reversing IRS policy; • IRS changed rules related to timing of PPP forgiveness T/E income • Extended 100% cash charitable contribution limit through 2021; • Increased business meals deduction to 100% for meals provided at a restaurant for 2021 and 2022 7
- 9. into American Rescue PlanAct of 2021 • Provided third round of Stimulus checks-treated as 2021 refundable credit; • Extended credit for paid family leave and sick pay to 9/30/21 and raises eligible amounts; • Extends Employee Retention Credit to 12/31/21(less later) 8
- 10. into Infrastructure Investment and JobsAct of 2021 • Reduces the eligible period for employee retention credit to 9/30/21 • Cryptocurrency reporting extended to brokers to mirror current reporting standards for securities brokers beginning in 2023 9
- 11. into Tax Highlights ofBuild Back Better Bill • Individual Proposals o 5% tax surcharge on MAGI over $10 million ($5 million Married Separate; $200,000 fiduciaries) o Additional 3% on MAGI over $25 million ($12,.5 million and $500,000) • NIIT would apply to high income taxpayers ($500,000 MFJ; $250,000 MFS; $400,000 all others) on all investment income, gains and business income regardless of material participation. o Target-S Corps and LLC income not already subject to NIIT or SE • Excess Business Loss limitation would be made permanent, and carryover would remain as an EBL. • SALT limitation would be increased to $80,000 10
- 12. into Tax Highlights ofBuild Back Better Bill (Cont’d) • Retirement Plan Proposals-Effective in 2029 o Prohibit annual contributions for high income taxpayers if FMV of retirement benefits exceeds $10 million ; o High income taxpayers would have increased RMD requirement equal to 50% of FMV of retirement plans in excess of $10 million. 11
- 13. into Tax Highlights ofBuild Back Better Bill (Cont’d) • Business Proposals o 15% AMT on C Corps with 3 year average Adjusted Financial Statement Income in excess of $1 billion; o Business interest expense limitations for both partnerships and S Corps would be computed at the individual level; • No entity level limitations • All attributes Pass through and are aggregated at individual level • What’s NOT in the Bill o Estate and Gift Tax Changes o General rate increases 12
- 14. Polling Question #2 Wouldyou expect more or less tax legislation in 2022? a. More b. Less c. Not sure d. Don’t care 13
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- 16. Grantor Trusts vs.Non-Grantor Trusts • Grantor Trusts o Take advantage of disconnect between income tax and gift tax rules o Income tax – grantor considered owner of trust o Gift and estate tax – completed gift and out of estate o Sales are disregarded for income tax purposes o Power to substitute assets 15
- 17. Grantor Trusts vs.Non-Grantor Trusts (Cont’d) • Non-Grantor Trusts o Effective way to transfer assets out of estate o Grantor is not owner for income tax or gift tax purposes o Asset protection o Separate taxpayer for income tax purposes • May be entitled to income tax deductions not permitted for individuals o Distributions may carry out income to beneficiaries in lower tax brackets resulting in lower taxes paid 16
- 18. Grantor Trusts vs.Non-Grantor Trusts (Cont’d) • Non-Grantor Trusts – newest tax proposal o Millionaire income tax surcharge - new surcharge on the income of millionaires. o Individuals: 5% tax on income above $10 million (MFJ)/$5 million (MFS), and an additional 3% tax on income above $25 million (MFJ)/$12.5 million (MFS). o Estate and Trusts: 5% tax on income above $200,000, and an additional 3% tax on income above $500,000. o What is income for purposes of the surcharge? 17
- 19. Valuation Discounts • Takeadvantage of valuation discounts • Lack of marketability • Minority interests • Need independent qualified appraisal – best way to ensure adequate disclosure. 18
- 20. Intra Family Loans •Take advantage of low interest rates • Provides income stream • Fund a mortgage for children and grandchildren • Help a child start a business • Flexibility with the repayment structure • Good way to shift wealth • Must have promissory note and an interest rate equal to or greater than the AFR 19
- 21. Make Annual ExclusionGifts • $15,000 per donee annual exclusion for 2021 o $30,000 per donee if married and splitting gifts • Increase to $16,000 per donee for 2022 o $32,000 per donee if married and gift-splitting • Outright cash gifts • Frontload 529 Plan gifts and make election to treat gift as made ratably over a five-year period • 2021: $75,000/$150,000 • 2022: $80,000/$160,000 • Utilize Crummey withdrawal powers • Unlimited exclusion for direct tuition and medical care payments 20
- 22. Using the FederalExemption • $11.7 million exemption is still available • Scheduled to decrease to $5 million (indexed for inflation) on January 1, 2026 • Make taxable gifts to use this exemption o Aggregate taxable gifts need to be over $6 million to make use of the additional exemption • SLATs are still a good option • GST – use GST exemption of $11.7 million. It will decrease to $5 million on January 1, 2026. 21
- 23. Make Charitable Gifts •Gift tax deduction - dollar for dollar charitable deduction • Income tax deduction - deductibility depends on type of gifted property • Split-interest trusts o CLATs o CRUTs 22
- 24. State Gift andEstate Planning • Twelve states and DC currently have an estate tax o Connecticut, District of Columbia, Hawaii, Illinois, Maine, Maryland, Massachusetts, Minnesota, New York, Oregon, Rhode Island, Vermont, Washington • Six states currently have an inheritance tax o Iowa, Kentucky, Maryland, Nebraska, New Jersey, Pennsylvania • Connecticut has a gift tax • New York State Estate Tax: o 2021 exemption: $5,930,000 o Top rate: 16 percent o Lose entire benefit of exemption at $6,226,500 o No gift tax; no GST tax o Three- year claw back for gifts 23
- 25. Foreign Individuals • Non-citizensnot domiciled in the US are subject to federal estate and gift tax on transfers of US situs property • US situs property is different for gift tax and estate tax • $60,000 estate tax exemption in 2021 • No gift tax exemption • Estate and Gift Tax Treaties may modify rules 24
- 26. Polling Question 3 Whatis the current lifetime exemption amount? a. $15,000 b. $11,700,000 c. $11,580,000 d. $5,930,000 25
- 27.
- 28. Refresher • CARES Actof 2020- The Coronavirus Aid, Relief, and Economic Security (was enacted into Law 2020) • Pandemic Emergency Unemployment Compensation (PEUC) - established by the CARES Act (Expired on September 5, 2021) • ARP Act of 2021-The American Rescue Plan-delivering direct relief to the American people, rescuing the American economy, and starting to beat the virus. 27
- 29. Planning Opportunities • RecoveryRebate Credit o CARES Act of 2020-first two rounds of stimulus payments were provided o Consolidated Appropriations Act (CAA)- additional $600 (subject to phase-out limitations) o For 2021, ARP increase in child tax credit- • $3,000 per qualifying child age 6 or older • $3,600 per qualifying child under 6 28 Eligible taxpayers who did not receive the payments will be able to claim them on their 2021 Tax return filed in 2022 as “CHILD TAX CREDIT”
- 30. Planning Opportunities (Cont’d) •Capital Gains o Long-term capital gain and qualified dividend rates remain unchanged (0%, 15% and 20%) • Holding period (Long Term vs Short Term) • Gifting • Loss harvesting • OZ investments 29
- 31. Planning Opportunities (Cont’d) •Net Investment Income Tax (NIIT) o Additional Tax for taxpayers with MAGI (Modified Adjusted Gross Income) of more than $200,000 per year ($250,000 Married Filing Joint, $125,000 Married Filing Separate) may be subject to net investment income tax. o Key Considerations • Electing installment sale treatment • Selling unrealized loss positions • Switching investments to tax exempt investments 30
- 32. Planning Opportunities (Cont’d) •Retirement Plans o Maximize 401K plan contributions o Self-Employed Retirement Plan (SEP) o Coronavirus-related withdrawals (From IRAs, pension plan or 401K plan) during 2020 o Conversion to tax-free ROTH IRA o Withdrawals? o REMINDER - Required Minimum Distributions (RMDs) must be made for 2021 (previously suspended for 2020) 31
- 33. Standard vs. ItemizedDeduction • Standard deduction o Increased amounts for 2021 (Married filing joint $25,100; Single and Married filing separate $12,550) • Itemized deduction o Medical expenses can be deducted to the extent that expenses exceed 7.5% o Mortgage interest (TCJA limitation on deductible interest) • Tracking • Paying down the mortgage (Earn tax-free and risk-free income) • Charitable donations o CARES Act 2020 incentives extended through end of 2021 (Cash donations to public charities fully deductible up to 100% of Adjusted Gross Income) o For non-itemizers-can claim up to $600 of cash contributions (Married Filing Joint) and $300 for all others o Consider bunching donations o Donation of appreciated stock o Sell depreciated stock and donate the cash proceeds 32
- 34. Qualified Charitable Distributions (QCD) •The QCD must come from a traditional or inherited IRA • Beneficiary must be at least 70½ • Distribution must go directly to a qualified charity • Donation is excluded from taxable income • No charitable deduction can be claimed for the contribution 33
- 35. Other Key Considerations/Final Thoughts- •Small business owners-claim the Employee Retention Credit (ERC) • Defer income • Accelerate expenses • Home office deduction • Acquire Assets (Section 179 Expense elections and Bonus Depreciation) • Making deductible retirement and HSA contributions • For Section 199A Deduction(QBI Deduction) -(complex rule)-consider to see if independent contractors should be converted to employees (W-2 wages) • Aggregate qualified businesses to maximize Section 199A deduction 34
- 36. Polling Question #4 In2021, individual taxpayers are allowed a deduction for cash contributions to public charities up to: a. 20% of Adjusted Gross Income b. 30% of Adjusted Gross Income c. 60% of Adjusted Gross Income d. 100% of Adjusted Gross Income 35
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- 38. Thank You For Participating! Thankyou. “Citrin Cooperman” is the brand under which Citrin Cooperman & Company, LLP, a licensed independent CPA firm, and Citrin Cooperman Advisors LLC serve clients’ business needs. The two firms operate as separate legal entities in an alternative practice structure. Citrin Cooperman is an independent member of Moore North America, which is itself a regional member of Moore Global Network Limited (MGNL).