Democrat's Tax Bill: How It Affects You!

You hear that? That's 800 pages. $7 trillion worth of crap in 800 pages. These legislators don't know every little detail. Welcome everybody, to this week's episode of the Main Street Business podcast with yours truly, Mark Kohler and my amazing co host, Matt Sorenson. That's your cue.

Yeah, baby, I'm here. I'm here.

We don't have one of those good looking guys, sexy girl, kind of little, with a clipboard pointing at Matt.

It's you, you know, like, yeah, you're on.

You're on. So I kind of have to say that for everybody. So, you know, so it's.

We don't have a budget for that. Yeah, I need a lead in. I need like a little cue. That's your cue.

That's your cue.

Say something. Okay.

If some of you were searching this topic on the new Democratics tax bill, the New Democrats tax bill that was presented in the House released to the House Ways and Means Committee just this past few days. It's been a whirlwind. We're here today to hopefully break it down into what you might want to be concerned about from a tax and legal perspective. We're both tax attorneys, real estate investors, small business owners, family guys, just trying to make it work.

Taxpayers, taxpayers too. So I feel you're paying on some of these. That might hurt. There's some good news in here, though. I don't want you know, this isn't all doom and gloom. Some of you who don't like paying taxes, and I understand that frustration. But there's some things that aren't in the bill that Biden was asking for and made a lot of news and scared a lot of people that didn't get into this bill. So that's important. We'll note what's in and what's out at this point.

Yeah. Also a couple quick disclaimers. We don't want this to be a politically driven show where all we're doing is beating up President Biden or the Democrats. So I'm going to say this as artfully as I can. Usually Matt corrects me after the show. You can't say that, Mark. But I'll try. I'll try. Here's the deal. Some of you out there believe Donald Trump couldn't do anything wrong. The guy walked on water. Some of you believe he's, you know, Satan. Others of you think the same thing of Biden. I'm all in. Anything Biden does, I'm behind 100%. Some of you hate him. Let's Just let's take that off the table. Here's the deal. There was things that Donald Trump proposed in the tax cuts and job act that weren't great for everybody. There's things I didn't like in it. There are some things I really liked. The same thing's happening here. You can't just say, I'm on this side of the aisle or this side of the aisle and just throw tomatoes at the other side. You need to be informed. And we want to give you the resources to contact your legislator, your senator, and let him know, Democrat or Republican, what you like and don't like. So there'll be a link down below to the website that you can go to and easily find your representative and how you can immediately email him. This takes 15 minutes. So I just want to let you know we're not here to bash anyone. But really I'm going to say this, bash legislators that don't know what they're doing, that don't understand the real impact this might have. And that's what lobbyists do. Lobbyists try to let them know this is not a good provision. Oh, so my staffer got it wrong. Okay, let's take that out. And if we could take by, you know, all the partisanship, which means bickering between parties out and just deal with what helps an average American the most, it'd be easy, but it's not. So anyway, we're going to do our best. Matt, was that okay? Nice disclaimer.

That was, that was great. I mean, that was, I mean that, that path you just crossed was laden with landmines and you, you didn't blow up.

I have all my well done. I have all my limbs and body parts. Okay, now I want to say this too. Matt's done a lot of research on this and actually it's been an exciting week. Matt and I have literally exchanged phone calls and texts with U.S. senators, U.S. congressmen. We just had a phone call this morning with another one and it's been kind of exciting to be in the trenches doing our own little lobbying. It's exciting when you have a senator during dinner text you and go, what do you think of this provision? You're like, you don't have people for this. Okay, all right, let's talk.

Yeah, it is cool. It is cool. So there's a couple items we're engaged in heavily. Just, you know, we're going to have some more details on this next week, but there are some provisions that could really hurt self directed IRAs and retirement accounts. And people trying to build for that. We'll mention them here. We're going to deep dive on that next week which is the main issue we're keyed in on. But we want to talk about this for everybody.

Yep.

Like all the stuff, there's so much in this bill. We want to give you the big picture, talk about some of the stuff that matters for, for many of you that self direct but this is going to be big picture, all the chips. We're talking about it all.

Yeah. And I was, where I was going with that too was going to say Matt has been really involved in the, the details in the minutia and I wanted to let everybody know two things. First of all, this bill is 800 pages long. Now if you're watching this on YouTube, I want you to see me holding this up. This is a ream and three quarters of paper. That's 800 pages. A typical ream is 500 pages. So I took approximately out 200 of this ream. You hear that? That's 800 pages. $7 trillion worth of crap in 800 pages. These legislators don't know every little detail. They rely on their staff and, and lobbyists to tell them what they should go into the meeting with. We talked to a, a House of Representative congressman this morning and he said we have been in meetings from 8am to 1am and that's the schedule this week in hearings. Just trying to pound this out. He goes, it is mind blowing. So you have to be a little patient with these legislators as they're trying to get their head around 800 pages and $7 trillion of spending. Number two, next point, we're early in the game. What happens is the House is going to beat this up, take it to the floor. Now all they need is a simple majority to pass it, which unless some Democrats, you know, jump ship, they're going to pass this thing. Then it's going to go to the Senate. Now the first round, if any of you want to make changes to this and you don't like it, you email and text and call and shoot flares in the air and you let your representative know if in committee, go get this off the bill. That's your first round of lobbying. But if it doesn't get off, it's going to be in the bill and probably the Democrats as a majority in the House are going to pass this thing. Then it goes across the aisle to the Senate. Over in the Senate they're going to throw it in committee. Now there we got a little better opportunity to make changes because there's only 100 senators and they've got a committee and they take a little more time. And you're the number of, you know, 435 congressmen. Right. Compared to 100 House members.

Yeah, yeah, yeah. And in the Senate there's only a one vote majority for the Democrats and there's already a few Democrats that have said that. What? That they don't want to vote for it. And so there's going to be a negotiation over on the Senate probably more likely. The House is important too. So if you don't like stuff stuff in this, you want to write your House member, do it, you know. So, yeah, I think it's, we think that the battle is going to happen in the Senate. Yeah, that's where the, the real sausage making is going to happen.

Yeah, exactly. If you want to eat a good bratwurst this weekend, do not watch a video on how do they make sausage. You will not ever eat sausage again. Now in the Senate that'll go to committee as well. And they're going to beat it up. And this is where negotiation occurs. Then the final bill from their side is voted on. And if the Senate passes it and you hope that all the crappy parts are taken out and good parts are put in, they pass it, then it goes to a reconciliation committee. And that's when the House gets another bite at the apple and they come over to the senators and go, hey, we really like this one provision you got rid of. Let's talk about it. And so they kind of really hone on in on the things that they're bugged about. And this is where Nancy Pelosi earns her paycheck. So she's going to go in there from the House and go, whoa, whoa, whoa, whoa, you know, Senate, you, you screwed up on a few things. You missed the, missed the boat or whatever, then they settle on a final bill and vote one last time. Is that right? They vote one last time and both sides no urges go to for signature.

Depends on whether they change it or not. But the, the one thing is there's a lot of process to this, but it's moving lightning, lightning fast and they want to be done with this like in matters of weeks. So a lot of the legislative stuff you hear is like, okay, they're working on a bill that, you know, no, they're like, the Democrats are, this is their time. They know they're, they don't want to do it next year. They're gunning for it now before the holidays and so that, so that's leadership on Senate and House has been like, we're moving. This is weeks.

If this isn't done by. Yeah. If this isn't finished by Thanksgiving, heads are going to roll.

Yeah.

Along with some turkeys. But this is, you know, do you like that?

A lot of turkeys. Which turkeys are you talking about? The ones in D.C. or the ones on my table?

I know it's crazy. Okay, now with that background, let's dive into it. But I think it's important all of you know, you have time to reach out. And if, frankly, if you're going to reach out to anybody, by the time you get this podcast, get, get around to it and type in an email, you're probably best served to send it to your senator. Right now, the House is trying to get this out of committee by the end of this week.

Unless your rep is on House Ways and Means Committee, which is where the House committee that manages this on the House side. But yeah, you're right. Senate's where it's going to matter.

Yeah. And if you have a Democratic senator, even if you're Republican, reach out to your Democratic senator. And see, this is where you as a business owner, you as a Main street investor. This is where Matt and I feel like we can, we can get past the politics and say, I think most Americans want to build wealth. They don't want to pay taxes. They really don't. Now, yeah, rich people piss them off and there's social agendas and Trump did this stupid. We get it. Biden did this stupid. I get it. But we all are together on trying to build wealth and save taxes. I hope so. If there's something in here you don't like, don't be a jerk about it and you know, yell at your congressman or your senator. Send him a very articulate email. It can only. It doesn't have to be a book. Send them two or three paragraphs and go, I don't like this provision. Now you want a trick. When you send the email, say, this will affect my local economy. This will affect jobs in my business. This will affect my ability to take my kids to college or get my kids to college or this will affect my ability to retire. The more you can put a real life impact. Because Democrats and Republicans don't want to hear from their, what do you call them? The people in their area.

Constituents.

Constituents. You don't want to upset constituent that says you cost me jobs. Democrats are all about job creation, too. So when you send your email Go. This hurts jobs. That's going to help your message be heard.

Okay. All right. I like that. Little civics lesson there.

Okay. What? Okay, let's talk about the non rich issues. A lot of people think they're just tackling the rich. So Matt, now I'm going to shut up and just be color commentary. This is why I talked a little bit more at the beginning of this podcast because I knew Matt was going to bring a lot of the technical side. So there's three, two or three, I don't know, kind of what's in, what's out that are non wealthy issues. So let's go over those first.

All right, let's hit the first one, which is step up in basis. So this was a provision that Biden was asking for which would basically say if you inherit property, let's say your parents pass away and you inherit the family cabin, all right. That if the family bought it for 100,000 years ago and now it's worth a million under current law, you can sell that and there is no tax on the gain. Okay. You can inherit it, sell it for a million bucks. There's no tax on the gain that your parents pay in the estate or there's no tax to you that inherits the property.

Yeah, the basis, the math would be the basis was 100 and when they die, the basis has stepped up to fair market value on the date of death. So if grandpa and grandma or mom or dad died six months ago and it was worth a million when mom and dad died, but now it's worth a million. Two, you get the stepped up basis to the fair market value on their date of death and then you have to pay tax on any gain since their death. So there's a lot of times a couple appraisals involved in this. But that's the current law. Matt, what's the new law?

Right. Well, Biden was Biden's proposal, this is why we're talking about it, was to cap it at a million to say you can't inherit and avoid the step up in basis on taxes for a million. The over a million cap was not for over a million.

Yes.

Yeah, you got up to a million you could use it for. And so now that provision, Biden's ask, it was many, it was reported heavily in the news, did not make it into the bill. So that's, I guess, I don't know, good news for those that want to inherit an estate from their family or maybe, you know, and not have to worry about the. Which could be an inheritance tax or a capital gains tax on those assets.

I thought that. Okay, now this is good because Matt's been in this 800 page document. Literally, it's on his laptop. I called him last night at 2am and he was incoherent in the corner. Just sucking his thumb after reading this thing. But now you're saying I thought the stepped up basis was across the board with no 1 million dollar limit. It was worse than Biden proposed. Or a stepped up basis completely not

in this stepped up basis is not in the bill at all.

Okay, good, good.

Biden. Yeah, Biden had the million dollar threshold, but nothing is in the bill. So the current rules, which you can't, which is that you can inherit from your family, let's say parents or anybody, and you get that stepped up in basis. Mark talked about fair market value of date of death, so you don't have to pay all the taxes. That benefit that we have right now is staying not effective.

Right.

Not the bill.

Next. Staying one. That was a vicious rumor. 1031 S10, tell us what's going on there.

Yeah, yeah. 1031 exchanges, Biden talked about ending those on real estate and putting a cap on them. There's nothing in the bill on 1031 exchanges that would amend 1031. So for those real estate investors out there that like to buy a property and then maybe sell it after it's appreciated and get into a bigger property and kind of roll the gain into the next one and the next one, you're still able to do that and use that 1031 exchange strategy. Nothing in the bill on that.

All right.

Despite Biden's ask for it. Not even in the bill.

Good, good. Now let's talk about state taxes as a deduction on your tax return. Now, this is where wealthy or poor, Republican or Democrat, this was kind of sucky in the Tax Cuts and Jobs act that President Trump pushed through is they said we're going to raise the standard deduction, but we're going to cap how much you can write off as an itemized deduction. If you choose to itemize, we're going to cap any state or local or property taxes at 10 grand in total. So if you lived in some of these blue states, like California, New York, Illinois, some of these states with huge state taxes, you didn't have to be too rich at all or have a lot of income to realize that's crappy. I'm going to better. I'm better off maybe to itemize. And even though Trump changed The rates, this little limit was kind of bothersome. Is that changing? Is that going to change?

That is not. There's no changes on that. So that Trump provision, which we did not like in Tax Cuts and Jobs act that did limit this and it really hurts states that have higher state taxes. Quite honestly, California, New York, a lot of the east coast states just have a higher state income tax. You know, someone there could be have a family household income of 100, 200 grand and they're phasing out not able to use this deduction. Well, that's under the 400,000 that you know, Biden has set as kind of the threshold of being wealthy and all this tax stuff. So, so that, that, so that's one still stuck in there. There was talk about getting rid of it or increasing that limit, but it's still in there. The Trump era tax cuts and job deck 10,000 limit for state and local tax.

Okay, now let's talk about one more, maybe some additional ones here in a moment. But let's talk about one more that affects everybody no matter what income level you are. Now this is the one that Matt and I have been dialing for dollars help trying to, trying to protect you, our listeners. This is the one that's freaking us out. Is this mega Roth IRA target that some Democrats really got upset about. Some wealthy people with big IRAs and they're just throwing a huge net and trying to just shut down self directed IRAs. In total is a overreaction to this. Tell us what, what's in the bill on IRAs, Matt?

Okay, so a few things. One is there's a cap on IRA accounts at 10 million. So you're not gonna be able to accumulate IRA balances over 10 million. You're gonna have to basically distribute out the funds before or anything in excess of 10 million. But, and that's fine. You know, we get that that's a rich person thing. You got an account of 10 million. Sure. Do we have some clients that are getting affected by that? Yeah, but not many. Most everyday self directed investors we work with are under a million, but they're trying to just build up an account to a million that they can return. So while we don't love that that's in the bill, the 10 million cap and that was really targeted the Peter Till 5 billion Roth IRA. And a lot of the Democrats in the Senate didn't love that. And Peter Till is a pretty active Republican and he's a target. Let's just be honest. Okay, now here's the provision that's problematic though because for everyone else you're like, man, I don't got a 10 million IRA. I don't sweat it, I'm good. Cool. Me neither. I get you. Here's what matters though. For self directed, there's a provision in there. It's in section 138, 312 in this new bill that's proposed. So who's really going to be affected is those who want to invest their IR in small business and a startup, maybe a reg D or crowdfunding offering where there's some securities exemptions, maybe a credit investor status that is going to be locked out for IRAs. And anybody that has already done that before is going to also have to distribute their account in two years or that asset from it. And so this is a target at Peter Thiel who is vesting in private companies before they went public. And it's really an overreaction. So we know that it's everyday Americans using their IRA to invest in this stuff. Like we probably fund 10 investments a day from someone's account into a small business that let's face it, every big business, it's a publicly traded company now one day was a small business. And so then we need people to invest their IRAs and help grow small business and that turn into the next big big business. So that's the provision we're trying to find. It's 138, 312. We're a lot more information next on this. You'll be seeing more info from us as we're trying to get other people engaged, including many of you and many people who may already self direct your account. But that's the big one. IRA LLCs could also be affected by the way the ability to use an IRA LLC to buy real estate in the bill. So those are the two things we're keyed up.

Okay now let me give a huge call to action to everybody right now. Okay everybody. If you're multitasking, driving down the road thinking of, you know, what you're going to have for dinner tonight, just listen. If you self direct an ira, this provision, these two provisions are a death knell literally for what you may want to do with your IRA to invest in small business or real estate or a whole host of things. This could even include a crypto mining rig. So you got, there's some big issues here if this concerns you. And we're going to be sending out more and more emails and blogs and social media posts and holding a special live YouTube next week on this if this concerns you. Now here's the action you take. Now write this down or open notes on your phone. Just go open notes on your phone. Grab a pen, grab a pencil, piece of paper. Write this on a napkin. I want you to write down these two numbers. 1-383-12. That's the first number. Section 1-383-12. Refer to it as section 138, 312. Okay, next line. Section 1-383-14. That's section 1-383-14. Then you're going to go on the web and just search who's my representative or who's my congressman for my state or my district, my area. Get on a map. There's all sorts of websites that will help you. We've got a link down in our podcast below and on the YouTube video for this, this present, this broadcast. Go to that link and look up your congressman and it's going to say, how do I contact my congressman? There will typically be an email or a phone number. Use both if you feel so inclined. There's an address if you want to mail a real letter and just write a simple two or three paragraph note. So, and so I live in your district. These two provisions in this new bill will significantly impact my retirement savings account. And it's going to cost me money and jobs and the ability to help my community. Please take these out, sincerely yours and

say, I'm not someone with a 10 million IRA. I'm just someone trying to get to a million, you know, and that's the message of, fine, leave the thing in there, the 10 million IRA. You want to limit people's ability to grow a tax favorable account. Fine, that's again, we don't, we don't love it, but we think, you know, perform as best you can your account. But we understand politically there's will. They want to do that, but don't shut it out for everyone else. Don't close the party, you know, because a bunch of billionaires got in on it to everyone else. We all want to build our account up to a million.

And I'm going to say this, even if you're in a district that's got a Republican congressman or congresswoman, send the message. Don't just think, well, my Republican, they're all against Biden, they'll just sign off. No, no, they need to know how you feel because they have staffers and their staffers see that message and go, ooh, ooh, I better tell this other staffer across the hall. That's working for a moderate Democrat. How my constituents feel too. So the more awareness you can garner for this, whether they're Republicans or Democrats, the better. Now I'll say this. If you're in a district with a Democratic congressman or congresswoman, even more important, send the frickin email every day for the next 10 days. Just get their ear. And if you can call and talk to someone, do it. This will cost you thousands, if not hundreds of thousands of dollars in your retirement account if this passes. Now we're going to get more info out on that, but that's a big one. Yeah. Okay, now, all right. Okay, Matt. Now before we talk about some of the other provisions that will affect those that make more than 400 grand because that's really what some of the Democrats are doing is they're trying to raise taxes or curtail tax breaks for those that are considered wealthy. In their mind, it's this $400,000.

Yeah.

Now before we go there, let me just point out a couple points. This is from the kpmg. They're one of the big five accounting firms in the world. I actually worked at KPMG back in the day before I became a lawyer. A little shout out for them.

You guys use abacuses back then or do you have calculators? Or how did you guys, how did you guys actually do accounting back then?

I'm gonna ignore that comment. I really didn't appreciate that. Jerk. Okay, now you know, I'm trying to help the listener here. And then you go and pull that, you know.

All right. You left yourself. Totally.

I did. I leave myself exposed back when we had log cabins, you know.

Yeah. Back in the day.

Abe Lincoln was out there on the road. Okay, now here's the deal. You may go. These don't sound like big deals. 7 trillion. What the freak? Well, here's some of the big picture items that add up to billions in the bill. Infrastructure financing. The government knows. See, back in the 1920s, 30s, 40s when we were in the Depression and after World War II, the government spent billions of dollars, that's in their dollars back then, to build America freeways, bridges. We need to get people back to work. This was a lot of that building that went on about 100 years ago. Well, guess what, all that crap's falling apart now. So we need infrastructure in America to be rebuilt. So this 7 trillion dollar package is giving incentives and it's called the new markets. And tax credit is permanent now. Expansion of the rehabilitation and low income housing tax credits and a new Neighborhood home credit and infrastructure financing. So there's a lot of money in this, in a good way for those that are maybe wanting to rehabilitate some areas and help the economy from a real estate perspective, there's some tax perks there. That's where some of the money's going. Matt, any comments on that or another?

No.

Okay.

No, that's cool.

Yeah.

I mean, there's lots of child care and child tax.

I'm going there. I'm going there. Okay. All right. Number two is green energy. Okay. Number two is green energy and number three is the social safety net. So I'll jump to what Matt said, Social safety net. The bill would extend and expand the refundable child credit, modify the child independent care credit and the earned income tax credit and create new tax credits to support child care providers and caregivers. So that's going to be a big part of this bill, too. Good. Yeah.

If you got kids, it's great.

Yep. Yeah, I'm trying to get rid of mine. My 18 year old just left this year. I'm like, yeah, any credit you're finally

going to get a tax credit for? And she's gone.

Now the credits come. Okay. Green energy. This bill would extend and modify the credits for renewable electricity production and for renewable fuels, extend and modify green energy and efficiency incentives for individuals and extend and modify incentives for electric and alternative fuel vehicles. So if this passes, you're going to see a bump in Tesla stock. Again. There's a little insider trading tip that's more outsider trading tip. But these. This is where a lot of the money's going to. Now, I wouldn't say those are bad things. And so we're going to talk more about those in podcast to come and say, hey, here's two or new credits or strategies you might want to take advantage of.

Yeah. Yeah.

So, but we're. We really want to just bring you up to speed on some of the rumor mill and some of the big ticket items and what's really hurting. So, but, but if you wanted a little more background, that's. That's where that is. Yeah. Okay.

All right, let's talk about the damage on your tax return. And I know this is for some people that are rich. Many of you small business owners, though, that, you know, want to be rich. Yeah. Mike. And many of you that want to be rich. This is what you're getting. This is what you're signing up for.

Yeah. Okay.

All right, let's start with the capital gains tax rate.

Okay.

So, and, and there's not finality on numbers, but basically what Biden was asking for was that capital gains rate would go to ordinary income rates. So you could be paying, you know, just the same as you pay on ordinary income, up to 39%, possibly. What's in the bill though is they think they've just added a 25% bracket. So the highest current long term capital gains rate you would pay is, is 20%. All right, depends on your income. But right now the Highest rate is 20. They're going to add another bracket to it. Increase the highest rate now to be 25%.

Okay, now, important point, everybody. I hope I still have some of you here that thought, well, I'm going to tune out now. I don't make millions. Guess who my phone call is within a couple hours. It's a client that does not make 400 grand a year. But they bought cryptocurrency four years ago and they're looking at selling this for close to 2 to $3 million gain. Guess what? They're the target. So if you've got cryptocurrency in your own name, first, go watch my video on Charitable Remainder Trust. You'd freaking love them. Those are called CRTs. Charitable Remainder Trusts. We can get out of the tax entirely with some nice perks. But if you go to sell this, you're going to. Well, I'm not super rich. No, you just made three mil. Guess what? Yes, you are. And you're going to get into this 25% capital gain rate problem and you're like, holy crap, that adds up quick on a big crypto sale. So FYI, see, some of you may think this doesn't impact me, but it can. When you go to sell your business, sell the land, sell the farm, sell the house, sell the crypto. Okay, Matt, next. All right.

Okay. Individual rates. All right, so those brackets are going to go up to A. Currently 37% is the highest. The, the new rate is 39.6 in the bill. This is same as what Biden was going to do to increase the highest rate up about two and a half percent. Now, the thing is, is they've lowered the limit. Biden wanted it to go into effect at 450 if you're single and 510 if you're married. The new bill, though, has the income thresholds at 400,000 single, 450 married. So under the house bill, you know, many more people are going to hit the highest rate faster than what Biden even had proposed. And I think they did that because frankly, they need to capture more people to raise more revenue for the spending.

Yeah, yeah, that's the rate.

Those rates and the incomes is the easy thing. You just adjust the scale a bit more. Oh, we raise more money. Okay, maybe rich is not 450. It's 400. Maybe it's 350, we'll get more people. Maybe it's 300, we got more money.

This is where mathematicians rule the world. Because they're like, just change that one number and this will balance.

Yeah, I just cap spending balances out.

I just been over 2 million Americans there, but it balanced. So it works.

Okay. Now there's a new tax, though, on income too. There's a new man.

These are like body blows. Do you have a knockout punch at the end of this? That's like the worst of them all. Are you saving one to just like I do.

I got the knockout punch at the end. You know, it's the same punch you use to beat Soda Popinsky and Mike Tyson's punch out sort of Poppinski. I love that guy.

Okay, all right. I love it. I love it. Okay, so body blow.

Next, new tax.

Okay, new tax.

3% surcharge. Now, this is only on people. It's on their adjusted gross income of over 5 million. Thankfully, many of us are unaffected by this. But it's a new tax. And what happens on a new tax that comes up like this is sure, it may come out as a 3% surcharge. And those making 5 million, why don't we apply it next time to the people making a million? Oh, and you know what? You're rich if you make 400.

Yeah.

And we need to raise more money. Maybe you're rich if you make 200. You know, you know. So this is the slippery slope. It's a new tax. They're only plan on 5 million. So there's not a lot of people are going to hate on it. Just the five millionaires.

Let me explain. I want to. Yeah, I want to explain what Matt's saying there too. And this. Some of you may know this term, some of you may not. This falls under the term, quote, slippery slope, end quote. Now, when you hear accountants and tax lawyers like us, we will use. This is a law that has a slippery slope. Now, the funny why we say that is at the top. When you go at the top of this hill, you go, we're only going to tax those that make 5 million or more. All right, cool. But it's slippery because once you okay this tax, you slide down the slope quickly because now that the bill's on the books, it's a lot easier to change who it captures. See, the hardest thing is getting the bill, the law, on the books. It's easy to change who it captures. That's the slippery slope. So all of a sudden you're standing up and going, well, this won't affect me. And they're like, well, and you're sliding down this hill and you can't stop because they might grab you later. So you have to say, do we really want this type of tax there? Because it may hit me later. Anyway, that's the slippery slope. Did you like that little.

Yeah, I like that. It's a great, great explanation. Great tutorial on the slippery slope.

Thank you. I got that from Christmas vacation. Clark W. Griswold, the Slippery Slope. Yeah, just want to give him full.

Let her rip.

Yeah, let her rip. Oh, man. Okay, next.

All right. Okay, next, let's do estate and gift. All right. Estate and gift tax. This is about when you die. So there's a lot of provisions in here that are confusing. But what happened though, back in 2017 is there was essentially a doubling of the estate and gift tax exemption. So an individual after that act in 2017 would get an 11 million estate tax deduction. Married about almost 12 million. 11.7. A married couple gets a deduction of 23.4. So unless you're making you have a larger than $10 million estate individual or a $23 million estate married, you under the current law, as is the Trumps and Republicans pass, you don't pay a state tax over those numbers. Okay. You gotta have a big estate.

Okay, now before you say what it is going to be, let me give another little example, if I may. Yep. When you die, the IRS takes a picture and in that frame of the picture, they want to bring in all of your assets and say, how much are you worth now? As 10 years ago, that picture was only around 1 to 3 million dollars. And a lot of people that had a family farm or a business or a little bit of life insurance, a little bit of 401k, they could get hit with the state tax and we're talking 50%. So if the estate tax exemption was 3 million, meaning you don't get taxed, if your picture is less than 3 million, you don't get taxed. But anything over 3 mil is at 50%. So if you had a family farm worth 4 million, when you add everything up, then you take 1 million over the three times it by 0.5, you got a $500,000 tax due within nine months of grandpa's death. And you're going, holy crap, we gotta sell the farm. And this is where the sell the farm phrase says the taxes are so bad, we've gotta sell the farm. That's because of this estate and gift tax. Well, back, like in 2017, as Matt said, they said, ah, is getting too many people. Let's make it around 11 or 12 million if you're single, 22 to 24 if you're married. It's capturing too many people. What's it going to be now?

All right, so now it's going to get cut in half about. So individuals are going to be at 5.5 million and couples will be at 11. So that'll take effect in 2022. Now the max rate is going to be 40% fed.

That doesn't include that.

That's tree. So that state.

And guess what?

A lot of states follow the exemption levels.

Yeah. Some don't. Let's talk about Washington state. Washington state's current exemption is. Oh, my gosh, I've got it on

my little inner two.

Yeah. It's a million or two. And married or single. And. And then it's. It adds up quick. And what's funny is Californians say, I'm going to flee the taxes of California and move to Seattle and become Seahawk fans. Love Seattle. I was just there over the weekend. Wonderful. They go to Seattle, they pay no state tax, and they think, oh, I'm living the dream. Then they die, and the estate tax comes in and kicks in. Now, some of you are like, I'm dead. Don't care. Well, fine. Some of you are like, I want to leave a legacy. I don't want all this to go to the government. I had bigger plans for my money. So you take 40% fed plus a Washington state estate tax. That's where the 50% comes into play. So when I say 50, I'm thinking state and fed will both double down on you,

as one would do.

Yeah. What's his name in Facebook? What was his name in Facebook that said, I'm out of here?

That was Eduardo Savon.

Eduardo Savon. When the Facebook went public, he said, I'm out of here.

He's like. He's like, Singapore or something like that.

Said, I'm not gonna pay America. Didn't he save, like, billion in taxes by just saying, I'm going to give up my US Citizenship and go to.

Well, when he dies?

Yeah, well, but it was income tax, too. I was, oh, I don't think he

got out of that. I think he's just going to get his future estate out of.

Oh, is that what you're saying?

Maybe you're wrong. I don't know.

I thought it was. He did it before the sale of the stock.

We ought to look into that.

I'm going to look into that while we're talking here.

All right, let's get our best. Let's get our best people on that.

Are we to the knockout punchette? Are you still body blowing me?

I got, I got two more and then I'm done. Okay.

All right, all right, all right.

Now these are retirement ones that really affect anybody, not just self directed. First, the backdoor Roth ira. That door is going to be locked shut. It ain't going to open anymore. BackDoor Roth IRA is going to be killed. Why? Because it's such an awesome strategy that we've been able to use to get people into Roth IRAs. That's if you're high income or you already contribute to an employer plan. Your 401k at work, the regular Roth IRA has been out of reach of it. You had to do what's called the backdoor. We've got many shows and stuff on that. We got apps that directed IRA to do the backdoor Roth ira. That one's getting closed.

Okay, now I will say this. This is where we're preparing for you in our firm to give you options and alternatives. That's what tax lawyers do. Whatever you pay us, we want to save you 100 times that when you multiply it out with future value and future wealth. The backdoor Roth IRA going away is only going to make the Solo 401k more powerful because you'll still be able to get your Roth money in through the 401k strategy, in a small little management business through your day job. So we've got ideas to back to get you, but I mean this is still a blow. But it's not the end of the into the line.

Yeah, yeah. It's on the other world.

You know, you.

Six grand a year in the backdoor. I mean, I do the backdoor Roth ira. So we love it. But that, that's what's going to close. And this is another one. And just like any of these things we've talked about, you know, if these are things you don't like, that's the stuff you write your congressman or senator about. They need to be educated and informed on what the heck people care about. So, all right, there's one left Though. Okay. You know what's, you know what's. It's interesting is, you know, you're onto a good thing and employing the best tax strategies for your clients. When the Democrats, when they want to raise taxes, try to close all the loopholes you use to benefit your clients. I feel like this is like, in some ways validation of all the cool stuff we figured out and help clients with for years that are now, you know, a little bit targets. Okay, next one. Roth conversions. You will no longer be able to convert to a Roth if you're making over the. In these like, 400, 450 rates there. When Roth conversions were first allowed, there was an income cap on it, and then that got removed by the Republicans. This is back in Bush era with the Bush tax stuff, so. Or somewhere around there. So the cap was lifted for anybody could convert to Roth. Now, though, they're going to put the cap back on for anyone that's kind of high income under the Biden administration, Democrats rules, which was around the 400 to 500,000 income range. Single, married. So I don't have any other bummer news. I feel like I should stop there.

Okay. To give the update on Mr. Saverin. Who was Eduardo Saverin?

Was that what you were working on over there? Okay.

I follow through on my commitments to research topics for my clients. Okay. Back off, back off. Okay. So Eduardo Savrin renounced his U.S. citizenship, U.S. citizenship almost 10 years ago. It was in May of 2012. And he did it right before the public offering of Facebook. Now, estimates were now he had to pay exit tax. When you say, I'm out of here in the U.S. now, some I've had clients call me up and ask this, I want to go to Puerto Rico. I want to give up my US Citizenship. What's it going to cost me and how much will it save me? That's a common call. Those that are, you know, big crypto accounts.

You don't have to give your US Citizenship to go to Puerto Rico, but, you know.

No. Yeah.

Maybe like the Cayman Islands or Singapore.

Yeah.

New Zealand or Australia. Like, who's talking about going to Australia now? Like Elon Musk or someone or. I don't know. Yeah, I mean, I think that's Peter Till.

Yeah. Yeah. So when he made his. When he renounced his US citizenship, he had to pay a. It limited his 15% exit tax to the gains on his shares and other assets up to that point. So before it went public, he said, value my assets, I'll pay my tax. And I'M out of here. Then it went public. Estimates are somewhere between 70 to $100 million in tax savings just on the public offering and estimates now on the estate tax and this new. All these taxes here too. His net worth was 2 billion. Singapore does not have an estate tax and with a passport you can travel anywhere. I'm sure he comes and visits the US all the time, whatever. But anyway, they're estimating he'll save estate tax of anywhere from 700 million to 1 billion. Now he's only 30 something years old if that makes you sick. But so, but anyway, that's why people consider this. I mean I know these are numbers that are almost incomprehensible for me and many and you too, I get that. But just think of a million dollars. If I could move somewhere and put a million dollars in my bank account and still come visit the U.S. i think some of us would even think about that. Now I don't. There's a lot, there's a lot to go into giving up your US and US citize. Not advocating that, but when you start putting zeros to this and go, that's a lot of money. I had some friends that went and lived down in Costa Rica for a couple years and went off the grid and raised their kids down there and homeschooled and they loved it. They ultimately came back for a variety of other business reasons. It was after the real estate crash. But I just. Anyway, so this, these are things that if you're listening to our show or watching this on YouTube you're like, huh, good to know. That's all I'm saying.

Yeah, yeah, great little tip there, Mark. All right, well leave America I guess. I don't know what that

the tip

was keep your options over making America great.

Yes, yes.

That sounds like you're moving to we're getting the hell out of here.

That wasn't what I was saying.

I'm just saying I was planting some seeds. Yeah, do something crazy.

Hey, you were the captain story.

It was a good story. I like the Eduardo Saverin. It's a good story. Well, thanks everyone for listening. Get over to mainstreetbusiness.com to check out all of our other prior shows. Sign up for our newsletter. Be on the lookout. Next week we're going to be. Mark said we're going to be doing some live stuff. We're going to be doing more content on this stuff for self directed IRAs. It's pretty critical and just be engaged, informed. The best person that's educated and informed and engaged is the one that can make the best choices for their own finances and taxes.

You know what would be cool to do, Matt? We should fly to Washington, D.C. next week and do the show live in D.C. huh? Huh? You could flip the bill for that. Would you? Will you buy my ticket? Let's go. I'll pay for the Hampton Inn. You get the first class tickets, okay?

Okay.

All right. Hold it, Corey. Our producers, like, am I in now? We're just going to do it on our phones. No. And we need Corey the cameraman, too, so. Yeah, I don't know. We should. We could do it right outside the IRS building. That'd be fun. Ground zero, as somebody said.

That's right.

That's right. All right, well, everybody, thanks for listening, and we appreciate your listening and watching. Please subscribe. We are. We are going to keep you abreast of every tax and legal strategy that will help you live a more full financial life and do what you love doing. Thanks so much. See you next week, Sam.