Cut and Dried Wealth Managers Face Tough Financial Planning Challenges Starting 2021

Wealth managers handling the business assets of individuals with high and ultra high net worth, will face new challenges starting this tax year 2021 and onwards. Aside from tax policy changes being proposed by the Biden administration, a new bill aimed at changing the IRS’ audit behavior toward the tax returns of wealthy taxpayers will also be introduced. Given that Democratic party lawmakers now have the majority numbers in both lower and upper houses of Congress, all bills proposing such tax policy changes will likely be enacted.

Now more than ever, choosing the right financial advisor to handle one’s tax plans is of utmost importance.Most of the proposed changes will impact major tax investment strategies conventionally used by tax planners and wealth managers. That being the case the cookie-cutter approach in managing the business assets of high net worth individuals, particularly those with ultra high net worth will no longer be effective.

Customization of Financial Plans is the Key to Effective Wealth Management

The key to effective wealth management is by customizing tax plans and investment strategies in accordance with the actual business conditions and true circumstances of the wealth owners and their families. That way, the financial plans and strategies will be aligned not only with the short and long term financial goals of every wealthy family; but will also conform to their current personal needs.

Moreover, in the event that IRS audit examiners put extra attention to the income tax returns filed by taxpayers who derive most of their income from investing their assets, the customized solutions will be proven legal and valid. .

Tax Policy Change On Sale of Investments Will Impact Conventional Tax Reduction Strategy

In general, America’s super rich are categorized based on their asset holdings, the wealthiest group being the high net worth individuals and the ultra high net worth individuals. Mainly because most of their earnings come from sale of long term asset investments, which under the U.S. taxation system is subject to Capital Gains Tax. When compared to the ordinary Income tax rates applied to revenues earned by business proprietors and employed individuals, the Capital Gains Tax rate is lower, of which 20% is the highest.

The Capital Gains Tax rate could even be whittled down to 0% if after deducting capital losses the taxable income for the year falls under the lowest tax bracket.

However, this is about to change under the Biden administration when the tax policy that aims to make equal, the tax treatment on revenues earned as compensation by salaried workers and revenues earned by wealthy investors. Taxable income on investment gains, if exceeding $1 million, will be subject to the tax rate applicable to the ordinary Income Tax Rate That is regardless of whether the assets sold (e.g.: bonds, precious metals, real estate or stocks) were held for more than a year by the wealthy investor.

This denotes therefore that gains from sale of investments exceeding $1 million will be subject to the top individual tax rate of the highest tax bracket. For the year 2021, the top tax bracket has been adjusted to $523,600 and $628,300 for single taxpayers and jointly filing married couples, respectively.

Actually, what has bee cited above is only one of the major tax policy changes under the new government administration In fact another significant change is the reversal of the top individual tax rate of 37% back to the 39.6%, which was the tax rate before the Trump administration enacted the 2017 Tax Cuts and Jobs Act.

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Tesla’s $1.5 Bitcoin Investment Sparked Greater Interest for Bitcoin Mining

In an SEC filing last Feb. 08, Elon Musk’s Tesla stated investing $1.5 billion in bitcoins, in line with the company’s future plans of accepting BTC payments. Naturally, Tesla’s move had further boosted bitcoin’s price, bringing it to a record high of $46,800. This new development has sparked greater interest in bitcoin mining, being a more affordable approach to increasing one’s crypto assets. However, those new to bitcoin are unaware that such development is also expected to further increase difficulty in mining the world’s most popular cryptocurrency.

While learning to mine bitcoins may be easy, there is more to understand about cryptocurrency mining since the industry has grown more complex in all aspects. Given that there are now ASICS bitcoin machines powerful enough to carry out 1012 conjectures per second in solving a block of bitcoin hashes, the machine will be working amidst a greater level of mining difficulty.

Increased Participation in Bitcoin Activities Impact Mining Difficulty

First off, one should understand that mining difficulty indicates a measure of toil and struggle that miners face when looking for blocks that can earn them a unit of bitcoin as reward. The current bitcoin mining difficulty currently stands at an estimated 20,823,531,150,111 or 20.82T. A high difficulty measure denotes that it is taking bitcoin miners to find and subsequently solve a block of hashes related to a particular bitcoin in circulation.

That being the case, one’s bitcoin mining activities will use a greater amount of electricity, which equates to higher costs; not unless mining is being done in a hydro-powered location where the cost of electricity is relatively lower.

The point is, the greater the difficulty, the lesser the chances of earning a reward. Once related costs are taken into consideration. the lower the profitability of a bitcoin mining business. Besides, ASICS bitcoin mining machines have become more expensive due to increased demand that cannot be met with an immediate supply.

Now there’s another option, called Mining-as-a-Service or MaaS being offered as an alternative approach to bitcoin mining. This option gives smaller scale bitcoin mining operators a chance to grow their business, by having one or more ASICS bitcoin miners at their disposal in exchange for a fee.

A Quick Look at Mining-as-a-Service (MaaS) of the ElevateGroup

The Elevate Group had foreseen that as bitcoin mining becomes more difficult, the small scale bitcoin miners will have fewer opportunities to participate in the cryptocurrency industry’s mining sector. As opposed to cloud mining platforms, the Elevate Group offers customers their pool of bitcoin miners. That way, customers can build their own mining team without having to worry about electrical costs, thermal-controlled environments and equipment maintenance.

According to this MaaS provider, their contract is finite since the duration will be tied to the life of the bitcoin miner (mining machine) working for the customers. The Elevate Group in turn, earns from MaaS contracts by collecting a 20% share of profits earned by each customer.

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Sen. Warren to Continue Pushing for Wealth Tax as Member of Senate Finance Committee

Despite not winning the Democratic presidential nomination, Sen. Elizabeth Warren says she will still push for her radical campaign calls for Wealth Tax.

Last Tuesday, February 02, Senator Warren confirmed that she will soon be joining the Senate Finance Committee. The committee membership is considered a choice assignment since she will have greater ability to push for a tax legislation that will impose levy on amassed wealth amounting to more than $50 million. In fact her announcement served as an ominous warning to the super rich, saying that introducing a WealthTax will her first order of business.

During President Biden’s campaign for presidential nomination, his tax proposal was to raise taxes on households with more than $400,000 in annual earnings, and to hike up the rate of corporate taxes, as well as to make certain modifications on Capital Gains Tax. Despite the contrast, the former Vice President still won the primary elections, relegating Wealth Tax proponents Senator Bernie Sanders and Senator Elizabeth Warren to second and third positions, respectively.

Brief Overview of Senator Warren’s Forthcoming Wealth Tax and Other Legislation Proposals

The Massachusetts senator’s office said that the Wealth Tax she plans on legislating is basically the same as the “two-cent tax” she voiced during her campaign, plus an “additional surtax” that will be imposed on every dollar of wealth exceeding $1 billion. The surtax rate, though, is yet to be determined.

Moreover, Senator Warren promised that she will still continue to push her campaign calls for cancellations of student loans, for changes that will make college education more affordable and for increasing funding for K-12 education. In a related statement, Senator Warren said she will continue to fight for the working families to provide them with meaningful relief, by being a progressive voice in instituting long lasting economic security for struggling American families.

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