January 2023 - 6

INDUSTRY NEWS
from americanhort to you
Future Tax Hikes Still Possible
With Changing Congress
BY EVAN LEE
Running a profitable small business is challenging under
the best of circumstances. Uncertainty from fluctuating
labor, input and transportation costs tests businesses
even further. Detrimental tax code changes could become
the straw that breaks the camel's back. Meanwhile,
many growers and retailers may be planning a business
succession, handing their successful operation to the next
generation, which also depends on smart estate tax laws.
AmericanHort and aligned business groups successfully
pushed back in 2022 on several tax proposals harmful
to family-owned businesses. Changing majorities in
Congress make these less likely to resurface in the coming
term. However, expect the administration and its allies
in Congress to continue pressing for revenue-raising tax
changes, especially in the context of the coming debt limit
debate. Prior proposals warranting continued vigilance
include the following.
Changes to Stepped-Up Basis
The law in its current form allows for the basis of
property received from a decedent to be adjusted to the
fair market value of the property on the decedent's date
of death. This will generally result in a " stepped-up " basis
to the decedent's heirs or beneficiaries. Paired with the
long-established rule that gifts and bequests do not trigger
capital gains tax, any built-in gain that existed as of the
decedent's date of death passes to heirs free of capital
gain and income taxes.
The Biden administration has proposed to eliminate
step-up in basis and assess capital gains tax on built-in
gains as of an owner's death. The proposal would include
these transfers as " realization events " and impose
capital gains tax on any appreciation of those assets that
cumulatively exceeds $1 million per taxpayer through
lifetime gifts and transfers at death, indexed for inflation.
Any unused lifetime exclusion would be " portable " to a
surviving spouse, consistent with the existing estate and
gift tax portability rules.
Removal of Estate Tax Advantages for Grantor Trusts
Under current rules, certain trusts whose income is
reported on the grantor's individual tax return are also
excluded from the grantor's taxable estate. Under a
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proposal in Congress, this benefit would have been removed
for 1.) New trusts established after the law was enacted,
and 2.) Contributions to existing trusts after the law's
enactment. This would result in a direct estate tax increase
for anyone using essentially any form of trust.
Elimination of Certain Business Valuation Methodologies
Under current law, a qualified appraiser may assign
valuation discounts to closely held business interests to
reflect a lack of marketability of the assets or to reflect the
decreased value of a minority stake in a family business.
The Biden administration proposed an elimination of the
availability of these methodologies, which would have
increased gift and estate tax liabilities.
Increasing Marginal Tax Rates on High Earners
The Biden administration has proposed an increase from
37% to 39.6% for individuals earning more than $400,000.
Looking strictly at the increase in rates, an individual with
taxable income of $1 million would owe $237,600 on
income over $400,000, an increase of $15,600 over current
rates. However, the administration additionally compressed
upper income tax brackets, meaning that an individual's
income tax on $1 million in taxable income would increase
from approximately $333,000 to just over $351,000.
Changes to Like-Kind Exchange Rules
The Tax Cuts and Jobs Act limits the availability of
tax-deferred like-kind exchanges to only exchanges of
real property. Under prior law, taxpayers were allowed
to exchange both real estate and personal property -
provided the property was of like-kind - and achieve tax
deferral. The Biden administration proposed limiting the
amount of gain deferral per person per year to $500,000;
and requiring gain recognition on any remaining gain,
causing a direct tax increase.
Supporting members' business profitability and growth
is paramount to AmericanHort's advocacy initiatives. As
we seek to shape outcomes in Washington, we will also
help members anticipate the shifting policy landscape and
optimize their business practices for success. Learn more
at www.americanhort.org/advocacy.
Evan Lee is director of policy and government relations at
AmericanHort.
http://www.americanhort.org/advocacy http://www.GPNMAG.COM
January 2023

Table of Contents for the Digital Edition of January 2023
