Links & Resources Mentioned:
https://www.directorsmortgage.com/loan-officer/adrian-schermer
Episode 39 Transcript
2022-02-09 ROI Tax 3 of 8
Rob Delavan 00:07
Good morning future millionaires and welcome to episode three in an eight-part series of the get rich, slow podcast. I am your host today, Rob Delavan. Adrian Shermer is in sunny Hawaii this week, so he will be joining us not for the next couple episodes. I am joined today by Sue Hjort, our guest and tax extraordinare. Lance Johnson is having a full docket of clients today. So, he will be joining us on probably for our next couple. But again, this is a third episode in an eight-part series and the title today is what to expect in 2022 when it comes to your taxes. So, welcome back.
Sue 00:57
Thanks.
Rob Delavan 00:59
Thanks for being here. So, it’s you and I. So, one of the things that we’re going to be leaning on in we have been in this entire series, and we’ll continue is just the success story every year CEU, your continuing education and tax changes, tax law changes every year. So, thank you for doing that. But yeah, we’re going to be leaning heavily on that as well as some other sources and on upcoming events. In the comments down below, we will put a link to our calendar and for all of our local events, webinars, and client appreciation things and so forth and there’s also links to our websites, where you’ll be able to find that stuff. So, in the episode ahead, so we’re going to be just picking Sue’s brain a little bit more with Sue with ROI tax, and she’s going to be teaching us what to expect for 2022 when it comes to your taxes, again, third in an eight part series, and on our last episode, we learned how to keep our 2021 tax filings simple. So, intro for you, Sue, we appreciate you being here and always love having you with us. Sue is, as you guys all know, my trusted CPA and business partner. I’m going to jump right into question number one. So, based on your continuing education, what changes are coming down the pike for 2022?
Sue 02:41
Okay, so, I’m thinking about that. Right now, I’m in the midst of doing 2021 taxes, what we’re talking about today is looking forward, and what are the possibilities? So, the issue is that if you’re following any sort of news on the government, they got stalled, build back better. Bill was supposed to have all the new tax changes and after they got through approving the transportation bill, the one with all those infrastructures to I think there you go infrastructure bill that had motto no over a trillion of money that needed to be spent. Now, they need to pass this bill back better to increase the taxes so that they can pay for it. However, it got stalled, so that it hasn’t been passed yet and here we are already in 2022. They’ve looked at a couple things like dividing it into three parts, because there’s some things that they’re not liking it because it’s not just taxes in that build back or it’s other stuff. So, however, with all that said, I just wanted to tell you, there is things that are being looked at that they’ve talked about several times, we talked in continuing education, about how they’d had various revisions up through the end of the year, and which things stayed through all those revisions and those are the ones they’re thinking are going to go through. So, tax rate increases, that’s going to go through, right now the highest level is 37% and it’s looking at going up to 39.6%, over 600,000 yen, okay, so we’re not talking about, you know, your average middle class family, but that’s where they’re looking in all of these bills to get the money is from millionaires, multimillionaires is really what they’re talking about. They’re saying that with the increases in some of these things, that they’re looking at multimillionaires paying on top of money, there is even been talk of taxing assets of multimillionaires. Again, we’re not talking about you and I in our 401k accounts, they’re talking about assets, you know, 10 million and above. So, I’m not going to be able to give you every detail, but those are some of the things that’s being talked about.
Rob Delavan 05:51
Well, what’s fun about this is fine or not, I guess, depends on how you look at it, it’s almost a political conversation of what’s going on in Washington DC, versus how, and then how it affects the vast majority of your clients, typically middle class business owners who are trying to be smart with their taxes, by working with a CPA, but it’s probably worth mentioning here that in no way shape, or form, are we endorsing, like one political position or another?
Sue 06:30
Absolutely not.
Rob Delavan 06:31
We are literally trying to just share this knowledge of what is likely to happen or not likely to happen, and frankly, based on the political winds changing, sometimes daily, we can be totally, oh, this is going to happen, and then the next day can be something completely different. But I guess the point of it is, you’re aware of it, obviously, because you do this every day, and you’re on it just on behalf as an advocate for the clients that you’re serving.
Sue 07:03
Yes. A couple things that I would say, is it, I’m 99% positive, that if they pass something before, June 30, oh, for heaven’s sakes, it could be after that, it’s going to be retroactive. So, it’s going to affect the whole year. But then on the other side of the coin, to reiterate what I said earlier, it is primarily affecting people on their tax return, they have income over 400,000, if they’re an individual or 450,000, if they’re married. Now, that does affect some of my clients but like I said, the majority of things are going after multi-millionaires. So, we’re not talking about should I fund an IRA or something that we’re talking about, be ready, because things are coming if you have a lot of money, but there you go.
Rob Delavan 08:09
Okay. Well, that’s good to know. Okay, so, question number two for you today. Sue, there’s been a lot of talk about there being changes to capital gains, at this point, is that expected to happen? What can we expect for 2022, speak about that?
Sue 08:31
Okay. So, as I mentioned, in a previous question, that they’re really the tax changes are going after people with large amounts of money. So, like I said, then maybe they’ve got a tax return with adjusted gross over 400,000 as single and 450,000 as a married couple. So, the capital gains rates now are zero, if you’re under the 12%, and there is zero capital gains tax 15%. If you get up to the 22% bracket, and once you’re over that, 400,000, it’s been 20%, and still is right now, what they’re talking about, is raising at the highest level. So, we’re talking again, closer to 600,000, that they’re going to go with 25% capital gains rate, it’s a possibility and then because of the fact that when you have income that high, there’s this net investment tax, sometimes called the net tax, that tax is 3.8% on investment income for people who have those high amounts of adjusted gross 600 and over. So, if you add 24 5% plus the 3.8. net tax, it’s the effective rate is 28.8%, they’re talking along those lines. So, it’s a definite possibility. Again, my average client, your middle class taxpayers, you can still make two 300,000, this is not going to affect you, you’re going to be those 15 or 20% tax rates, it’s just when you’ve got the higher levels, and you’ve got a good investment income, hey, I think it’s going to go up.
Rob Delavan 10:41
Follow up to that is, is that taking into consideration the long term versus the short term?
Sue 10:47
Those are the long term. I’m talking all long term here. Short term capital gains, anything that is held under one year, less a year or less, right here in a day is long term. Short term capital gains are considered ordinary income, and they’re at your ordinary tax rate. So, I apologise not upfront, but long-term capital is what I’m talking about.
Rob Delavan 11:17
We’ll put some definitions of that with references in our show notes. So ,that the long-term capital gains rate versus short term capital gains rates, just so that if the audience needs, they can look at it, there you go. Okay, so, next question for you, Sue is having income brackets changed. I think you were sharing with us a cnbc.com article that we’ll put into the show notes. But there are some pieces to that, to explore here.
Sue 11:59
So, the federal income tax brackets, going up has been one of the consistent things that we think is going to happen and that’s going to be for the highest bracket. So, right now, with the 2021, taxes, we’re looking at the highest bracket being 37% and that’s 400,000 and over, but it’s going to move up to 39.6%. I don’t know every bracket off the top of my head, but I do know that the other brackets are going to stay about the same, 10,12, 22, 24, 28, something like that. But it’s that highest bracket, they’re going to go a little higher, if you’re looking at 500,000, plus that type of thing as your adjusted gross income.
Rob Delavan 12:55
When you’re saying, four or five 600,000, I think you’re utilizing a range, because none of this is settled.
Sue 13:10
That’s not set in stone, that’s been the problem. Back to that build back better build that contains all the tax increases, hasn’t been able to get through Congress, some other things came out, with COVID, and, some political things where it’s got stalled right now, and they’re trying to get it through. But because of that, there may be adjustments and compromises. It sounds like the rates are going up for that highest bracket. But yeah, all the details haven’t come through yet.
Rob Delavan 13:49
So, don’t hold your breath. There you go. So, then I believe the second the second point of the three things needed to know by that CNBC article, was talking about standard deductions, correct?
Sue 14:03
Yes. So, standard deduction has, since they did away with exemptions back in the 2018, the standard deduction has been increasing. The statistic we heard in our class was 90% of taxpayers don’t even itemize anymore, at least on federal. In Oregon. You can still itemize, so, keep holding on to those receipts and contributions. But standard deduction going from this year doing the 2021 taxes. For a married couple, it’s 25,100. But it’s going to jump $800 and be 25,900 for a married couple in 2022.
Rob Delavan 14:49
That’s very generous of them, $800
Sue 14:51
Yes, it is and the single is half of that, 12,950.
Rob Delavan 14:59
So, I don’t want to be too sarcastic on this, but is the concept there of an inflationary adjustment?
Sue 15:14
Every year since they started with the 2018, it was 24,200. So, they’ve had increased every year and standard deduction.
Rob Delavan 15:27
Should I slightly sarcastically say thank you. You’re keeping pace with inflation, but it’s just something that’s going to move the needle we’re going to go from 25 to 30.
Sue 15:38
No, it’s just the annual we’re increasing, they did a little extra with this 2021. I’m still working on this and we’ve gone over this, they increased child tax credits for a year, they increased child dependent care for a year, and they’ve allowed people if you do cash contributions, then in addition to standard deduction, the IRS is giving an extra 300 per person contribution as long as you did cash contributions up to 600 for married couples and for singles 300. So, they’re trying.
Rob Delavan 16:27
I got to keep a positive attitude.
Sue 16:31
You know, you can help me with the podcast, we’re all about getting the wealth.
Rob Delavan 16:36
Exactly. So, that does the third point on that CNBC article. There’s also changes to the AMT estate tax exemption, earned income tax credit, flexible spending account limits, among others and just before I forget, we will put some the definitions of those with references in our show notes for this one, but do you want the AMT? Do you want to run down a few of those?
Sue 17:05
Yes, to give you a brief overview alternative minimum tax and that’s the hardest to explain. But most people know it is AMT and it’s like this whole separate tax bracket. Prior to 2018, there was a lot of people that fell into AMT and when they went to standard, this higher standard deduction, it’s almost gone for most people, because it had anyway, too much to go into. But yeah, they’ve talked about some other things with these new changes, possibly the estate tax exemption, which is 11 million now could drop to three to 5 million for the IRS. Federal right earned income credit, they changed for at least the 2021 tax year, and it’s a little higher, especially for people without children, people with children were getting it regularly. But they’ve even done away with age because it started at 25 and went to 65. Now they’ve expanded so more people could get it and flexible spending limits, those are with your health care stuff, that you opt into, they’ve allowed you to not have to spend the whole 2500 In a year, they’ve given you a little over slop into the next year, which is nice for most people. So, those are a few things that I know about it.
Rob Delavan 18:43
Okay. I love that. So, final thoughts on this, Sue, looking forward to 2022, can you sum it up in 15 seconds or less?
Sue 19:00
Yes. If you make over 500,000, you could have some increases and under that, you’re going to be fine.
Rob Delavan 19:09
Okay, I like it. So, you’re good. Thank you so much for being here. So, you are adding value to our listeners, the best way to find Sue is to visit her at her website, www.ROI- tax.com. That will be linked in the show notes and please stay tuned for our next episode in this eight-part series with Sue. The next episode we’ll be learning the basics of small business taxes so fun stuff. Okay, that’ll be it for today. Hope you guys enjoy it. Hope you guys can take a little bit away from this to help you get rich slow, and to really tackle the millionaire become in a millionaire by being brilliant at the basics. Thanks Sue, love it. Thank you, audience, we’ll see you on the flip side.