What The House Ways and Means Committee Proposed Tax Changes Mean To YOU
Taxes. They are as controversial a topic as most anything. When you ask people in this country if taxes are too high, the response is usually ‘yes.’ However, we are actually in the lowest federal tax rate in history, and until the 2018 Trump Tax Reform Bill goes away, taxes are on sale.
There are experts you can talk with who can help you navigate through the codes and in most cases find ways to get you into a lower tax bracket, but time is running out. I encourage everyone who pays taxes to reach out to a professional and have an audit performed to see if there is any adjusting one can do before the taxes go up in January, (as proposed by the House Ways and Means Committee, should this pass.)
Let’s look at some of the changes that are allegedly coming. First, while the committee is proposing a slightly lower increase than the White House, it is still a significant 5% capital gains increase to higher income earners and corporations with the current rate sitting at 20% to go up to 25%. This particular tax change was supposed to go into effect September 13, 2021, but revisions were still forthcoming. Speak to your tax professional to confirm whether this affects you.
Second, the income tax top rate for earners exceeding $400,000 or $425,000 for a married couple would move from 37% to 39.6%, and there is a proposal for a 3% surtax for anyone earning more than $5,000,000. Most of us won’t be impacted by the latter. The good news is that the state and local tax deductions (SALT) remain at $10,000, and thankfully an heir’s unrealized gains will still receive a “step-up” in basis to his or her date of death which will minimize or eliminate capital gains owed at death.
Third, the house proposal wipes out the sunset clause for the current tax benefits Americans enjoy and the sunset clause was set to end on December 31, 2025. That’s apparently going away the end of this year. As we are now in the 4th quarter, now is certainly the time to investigate further. Time is of the essence.
Fourth, there will be changes to IRA contributions and RMDs as well as IRA and Roth conversions. “The proposal requires an individual in RMD status (currently age 72 or older) to take the taxpayer’s calculated RMD amount plus 50% of the balance above $10,000,000. There are also proposed distribution requirements for Roth IRAs in excess of $20,000,000.” (This will impact retirees and potentially accelerate their running out of money in retirement.)
These are just a few of the highlights of the changes being proposed. It is the financial advisors’ job to provide clarity and direction, so if you need assistance in finding an expert professional do not hesitate to contact us. We are resource consulting company, and we can help.
For further reading visit: https://taxfoundation.org/biden-budget-proposals/#Tax
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