Ever since we learned that there would be a change in administration for this presidential cycle, changes to the tax code for both individuals and businesses have been a prominent and lingering point of focus for those in the financial planning industry. While some measures on the agenda, like the elimination of step-up in basis at death, were unprecedented, others, like increasing corporate tax rates were no surprise.
We still cannot be certain of just what measures will be enacted as law, if at all. The House of Representatives is reviewing a bill proposed on September 15, 2021, that is expected to fund a portion of the pending $3.5 Trillion “infrastructure” bill. While the proposal is far from law, a summary of some of the larger measures should help inform individuals of the potential changes that could have the most impact on their financial prospects. Below is a brief summary of these changes:
Proposed Changes:
- Increase of the corporate tax rate from 21% to 26.5%
- Increase of the top marginal tax rate for individuals from 37% to 39.6%
- Increase of the top capital gains rate from 20% to 25%
- Addition of a 3% “surcharge” tax on individuals, trusts, & estates with Income exceeding $5MM
- Reduction of the Unified Credit (Exemption) for estate and gift tax from $11.7MM to $5MM
- Increased scrutiny of Grantor Trusts with regard to their Inclusion in the decedent’s estate (future trusts only)
- Loss of eligibility to contribute to retirement accounts if your balance exceeds $10MM
- Institution of Immediate RMDs for Individuals (of all ages) that have retirement account balances exceeding $10MM
- Reduction and/or elimination of eligibility to execute “back-door” Roth conversions (some provisions are irrespective of income)
- Additional funding of ~$79 billion of IRS expansion
- Limitation on deduction of income for “pass-through” entities
- A retroactive measure (to 2016) limiting the deduction resulting from conservation easements
Notable Exclusions:
- Elimination/reduction of the step-up in basis of assets at death
- Expansion of the current $10,000 deduction limit for state and local taxes
- Mention of a cap for itemized deductions for high income earners
- Retroactive implementation of income tax provisions for 2021 (excluding cap gains)
Should you like to discuss just how any of these proposed changes could impact your own plan, please don’t hesitate to reach out. Our advisors would be more than happy to have a conversation.
