As we’ve seen over the course of history, there is always something to worry about. Currently, there is worry and fear with lingering COVID concerns, talks of additional government spending, the potential for a stock market correction, and possible tax law changes. There are some items that are merely noise while others require attention. The potential change in tax laws, is one of these items that merits additional scrutiny and perhaps additional estate and financial planning.
Proposed Tax Law Changes, what to watch
The House of Representatives submitted its 881-page draft bill that contains many tentative changes to the existing tax laws for both individuals and corporations. Keep in mind, this is still a draft and the Senate has not proposed its version. However, most political strategists agree that taxes will likely increase for many. We highlight several of the major proposals below:
- The top individual tax rate would increase to 39.6% for taxable income over $450,000 for married taxpayers and $400,000 for single taxpayers.
- The capital gains tax rate would increase for those in the highest tax bracket to 25% from 20% with the proposed effective date of September 13, 2021. However this could slide to a later date in negotiations.
- The estate and gift tax exemption would decrease to $5 million plus inflation ($10 million for a couple). The current exemption is $11.7 million ($23.4 million for a couple).
- Roth IRA conversions eliminated for those in the highest tax bracket
- Back Door Roth IRA strategies eliminated for all taxpayers
- The Corporate tax rate would increase to 26.5% from 21%
These proposed changes still must make their way through the reconciliation process with the Senate but are worth paying close attention.
If you have any significant upcoming changes in your financial situation such as the sale of real estate, a business, or other larger capital gain there may be some tax planning strategies to implement. Please reach out to discuss further.