Tax Trends and Monitoring Your Portfolio From A Tax Perspective

Today’s environment and market volatility have prompted fund managers and investors to evaluate the tax implications of their portfolios. The dislocation of markets has created a dynamic that is more important than ever to monitor your portfolio from a tax perspective. In SS&C’s recent webinar 2021 Tax Outlook and Discussion – What you need to know our tax experts discuss what these outcomes mean for fund managers and their investors, along with rising tax trends among active portfolio managers.

The main events influencing tax planning this year are lessons learned from the 2008 financial crisis, the 2017 Tax Cut and Jobs Act, the COVID-19 pandemic, and various regulatory changes. The webinar explores a variety of topics that are of particular importance this tax season, as well as considerations that might arise in the coming year, such as modifications to the 2017 tax bill. Another area of special relevance this year is how the CARES Act impacts taxes. For instance, how should Paycheck Protection Program loans and Employee Retention credits be treated? What are the state and local impacts of a remote workforce?

Also influencing tax planning this year is the recently released “The Made in America Tax Plan[1]” by President Biden. 

The current corporate income tax regime contains incentives for corporations to shift their production and profits overseas. Declining corporate tax revenues hinder the ability of the United States to fund investments in infrastructure, research, technology, and green energy. The Made in America tax plan would fundamentally reorient corporate taxation to reverse this legacy.

The proposed tax plan implements a series of corporate tax reforms to address profit shifting and offshoring incentives and to level the playing field between domestic and foreign corporations. These include:

• Raising the corporate income tax rate to 28%.
• Strengthening the global minimum tax for U.S. multinational corporations.
• Reducing incentives for foreign jurisdictions to maintain ultra-low corporate tax rates by encouraging global adoption of robust minimum taxes.
• Enacting a 15% minimum tax on book income of large companies that report high profits, but have little taxable income.
• Replacing flawed incentives that reward excess profits from intangible assets with more generous incentives for new research and development.
• Replacing fossil fuel subsidies with incentives for clean energy production.
• Ramping up enforcement to address corporate tax avoidance.

These are the major elements of the Made in America tax plan, but the proposal contains several additional tax incentives that would directly benefit U.S. corporations, pass-through entities, and small businesses. These include, for example, a marked increase in the resources available through the Low-Income Housing Tax Credit and other housing incentives.

On April 28, 2021, President Biden announced the American Families Plan, an investment in our kids, our families, and our economic future.   The White House - Fact Sheet: The American Families Plan[2] contains the following provisions:

Tax Breaks and economic recovery provisions

• Tax cuts for America’s families and workers
• Extend expanded ACA premiums tax credits in the American Rescue Plan
• Extend the Child Tax Credit increases in the American Rescue Plan through 2025 and make the Child Tax Credit permanently fully refundable
• Permanently increase tax credits to support families with child care needs
• Make the Earned Income Tax Credit Expansion for childless workers permanent
• Give IRS the authority to regulate paid tax preparers

Tax Increases

• Revitalize enforcement to make the wealthy pay what they owe
• Increase the top tax rate on the wealthiest Americans to 39.6%
• End capital income tax breaks and other loopholes for the very top
  • The President’s tax reform will end one of the most unfair aspects of our tax system—that the tax rate the wealthy pay on capital gains and dividends is less than the tax rate that many middle-class families pay on their wages.
  • The President is also calling on Congress to close the carried interest loophole so that hedge fund partners will pay ordinary income rates on their income, just like every other worker.
  • Finally, high-income workers and investors generally pay a 3.8% Medicare tax on their earnings, but the application is inconsistent across taxpayers due to holes in the law. The President’s tax reform would apply the taxes consistently to those making over $400,000, ensuring that all high-income Americans pay the same Medicare taxes.

These unique issues make it more important than ever to have a timely tax analysis on your portfolio, outlining tax efficiency goals and tools like a wash sale watch list, lost harvesting and aging reports. A tool like SS&C Tax Optimizer can help you perform that analysis.

To learn more about taxation outlooks for open-ended funds and how you can avoid generating losses and wash sales, view our on-demand "2021 Tax Outlook and Discussion – What you need to know" webinar.