President Joe Biden recently proposed a new top tax rate on long-term capital gains and qualified dividends. The federal rate would be 39.6%, with another 3.8% federal surtax as well state taxes. This adds up to a total rate of nearly 49%, a jump from 29.2% for people earning more than $1 million for assets sold more than a year after ownership. It would be one of the highest tax rates globally but only applies to the top 0.3% while other countries impose higher rates on a broader group of taxpayers.
There are some caveats
Along with the small pool taxed at this high rate, there are other caveats. The administration argues that the super-wealthy typically pay little if any taxes. Much of their earnings come from dividends, interest and capital gains, so the proposed change targets that 0.3%, raising it from 20% to 39.6% for the target pool. The current rate of 20% applies to those earning $200,000 annually and married couples earning $250,000.
Does Biden have it both ways?
The president promised that he would not raise taxes on those earning less than $400,000 but still impose capital gains taxes if a windfall amount pushes them above the threshold. Obviously, this could affect those who sell a house or business worth millions. Critics complain that this contradicts the spirit of the promise and likely will impact business owners retiring or families downsizing in preparation for retirement.
Tax controversy is common
Those facing a tax controversy regarding capital gains or other tax issues resulting in a dispute can contact an attorney who handles tax law matters. Just because the IRS or the state’s Department of Taxation and Finance claims a certain amount is due does not mean it is the final word on the amount paid. Aggressive and effective tax attorneys can help clients find fair and equitable solutions for their clients.