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Proposed Capital Gains Taxes Could Impact Individuals


Washington State Legislature Proposing Capital Gains Taxes That Could Impact Individuals

 

While proposals for individual income taxes and capital gains taxes have been floating around Olympia for years, this year’s budget negotiations have both houses seriously proposing a capital gains tax in Washington as a means to fund K-12 schools and higher education.

There was a hearing in the House Finance Committee on May 13th on proposed Substitute Bill number 1484, which is similar to prior proposals in the Senate and would include:

  • A capital gains tax of 5% on WA sourced capital gains above $25,000 ($50,000 joint filers) annually
  • No loss carryback or carryforward to offset gains
  • Only natural persons are subject to this tax, however pass-through entities (LLCs, S-corporations, partnerships, etc.) may generate taxable capital gains for their individual owners.
  • Net long term capital gains generally follow the Federal tax treatment with exemptions for:
    • Sale of a principal residence
    • Assets held in a qualified retirement account
    • Qualified property held in a trade or business
    • Certain exemptions for farmers for livestock or agricultural land sales
    • Timber or Timberland sales
  • Penalties as high as class C felony for intent to evade or gross misdemeanor for failure to file, pay or keep/provide adequate records.

While most capital gains will come from holding and selling certain investments, the gain can also be triggered by the sale of a company’s stock. If this legislation is passed, many small business owners could incur some level of capital gains tax when they consider selling their business upon retirement or when transitioning the company.
Additional information on the bill can be found in the link below (substitute bill proposal language can be found under the “Committee Materials” link). In addition, the link to the Senate version of the bill is included. If you wish to voice your comments on the bill, email information on your legislator can be found in the link below or you can contact them at 1-800-562-6000.

HB 1484:
http://apps.leg.wa.gov/billinfo/summary.aspx?bill=1484&year=2015
SB 6102:
http://app.leg.wa.gov/billinfo/summary.aspx?bill=6102&year=2015
Look up your legislator: http://app.leg.wa.gov/MemberEmail/Default.aspx