By Nathaniel L. Fissel, CPA, MST
     Member of the Firm
 

As the calendar turns to the final months of 2021, it is worth taking a brief look at changes in Federal tax law that the Biden administration has proposed. While these items are only proposals in their current form, it is prudent to be aware of these proposals as legislation could come to fruition this fall as Congress addresses infrastructure bills and funding the Federal government. The following are key Biden administration revenue proposals that we believe could significantly impact our clients if they were to be enacted into law.

Corporate Tax

• The income tax rate for C Corporations would increase from 21% to 28%.

Individual Income Tax

• The top marginal rate for individuals would increase from 37% to 39.6%, which would be applicable for taxpayers with taxable income of $509,300 for joint filers and $452,700 for single filers. Currently, the top marginal rate applies to those with taxable income of $628,300 for joint filers and $523,600 for single filers.
• Pass-through business income not subject to Self-Employment tax would be subject to 3.8% Net Investment Income Tax (NIIT) for taxpayers with income above $400,000.
• The deduction for contributions to a Traditional IRA and salary deferrals to 401(k) & 403(b) plans would be replaced with a flat 26% tax credit for contributions/deferrals to these types of accounts. Currently, there are no proposed changes to the tax treatment of Roth accounts.
• Enhanced Child Tax Credits ($3,600/child less than 6 years of age and $3,000/child ages 6-17) would be made permanent.
• Long-term capital gains to the extent they exceed $1,000,000 would be taxed at a proposed top ordinary income tax rate of 39.6%. Currently, long-term capital gains and qualified dividends are taxed at preferential rates of 15% or 20%, depending on taxable income.
• Section 1031 exchanges would be capped at $500,000 per taxpayer ($1,000,000 for joint filers) annually.

Estate Tax

• Step-up in basis for inherited assets with gains in excess of $1,000,000 would be eliminated (exceptions for certain family-owned and operated businesses and farms).
• Estate tax exclusion (currently $11.7 million as adjusted for inflation) would revert back to $3.5 million per person, adjusted for inflation annually.

While it may be too early or uncertain to take any immediate action in many cases, it is important to keep these proposals top of mind as the legislative process evolves, especially as revenue bills could be tied into the infrastructure bills that are currently working through Congress. 

Our team of SEK tax advisors is available to discuss any of these items as they relate to your tax plan and strategy. We will continue to keep you informed of any significant developments as they occur.

Use the contact form below to schedule a meeting with us today.