January 2023 - 8

HEADLINES/CALENDAR
Future Tax Hikes Still Possible
With Changing Congress
By Evan Lee, director of policy and government relations
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 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 in our industry. Changing majorities
in Congress make these proposals 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 builtin
gain that existed as of the decedent's date of death pass to
heirs free of capital gain and income taxes.
The Biden administration has proposed to eliminate stepup
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 types of trusts whose income
is reported on the grantor's individual tax return are also
excluded from the grantor's taxable estate. Under a proposal
introduced in Congress, this benefit would have been removed
for 1.) New trusts established after the law was enacted, and
2.) Contributions to existing trusts that occurred 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 - an increase
of $18,000.
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 about our advocacy
and policy efforts at www.americanhort.org/advocacy.
8 | LAWN & GARDEN RETAILER | JANUARY 2023
http://www.americanhort.org/advocacy
January 2023

Table of Contents for the Digital Edition of January 2023
