What can we expect from the likely candidates we see today?
John McCain has indicated a desire toextend the 15 percent rate on capital gains.Barack Obama, as part of his ‘Tax Fairnessfor the Middle Class’ plan, supports a returnto the 28 percent maximum rate on capitalgains. Hilary Clinton has expressed her intention to raise taxes on capital gains eitherthrough a proactive change in the enactedrate or by simply allowing the Bush tax cutsto expire.
Who will be affected by changes in the capital gains tax rates?
Those affected may include the rich, middle class and even working class families;basically, anyone who holds and sells stockor other capital assets at a gain. The tax alsowidely affects small businesses. Large corporations are generally unaffected by changesin the capital gains rates because a corporation’s regular income and capital gains areeach taxed at corporate rates.
It’s worth mentioning that the capital gainstax does not apply if you don’t sell. As WarrenBuffett has said, ‘The capital gains tax is nota tax on capital gains; it’s a tax on transactions.’ As a result, wise investors, like Buffett,who are really in it for the long-term, can endup with very low effective tax rates.
What action should business owners take inadvance of the election?
Most experts agree that, regardless ofwhich party is in the White House next year,capital gains rates will likely remain at 15 percent through 2010. So, there doesn’t appearto be any urgency to trigger gains by sellingcapital assets between now and the election.However, if taxpayers have a significantamount of ‘gain’ property, they should discuss the various options of minimizing capital gains taxes with their tax adviser.
How will California capital gains tax rates beimpacted?
Unfortunately, California has no favorabletax rate for capital gains. Rather, capital gainsare taxed as ordinary income. With the topindividual tax rate in California at 10.3 percent, the extra state tax paid on capital gainscan be significant, particularly when a taxpayer is in an alternative minimum tax position and is unable to get a federal deductionfor the state taxes paid. While the expirationin 2010 won’t affect California’s rates, taxpayers always have the opportunity to expresstheir opinions and perhaps influence ratesthat nurture long-term investments.
JOHN M.WYSON is a tax partner with Haskell & White LLP. Reach him at [email protected] or (949) 450-6200.
