The New Tax Bill-What to Watch

September 23rd, 2021 at 1:29 PM

Work in Congress on the new tax bill is progressing. The Ways & Means Committee of the House of Representatives has unveiled a detailed proposal to raise taxes by more than 2 Trillion to pay for proposed spending bills that are under negotiation. The legislative text contains an array of provisions, most notably increasing the top income tax rate, the top rate for capital gains, and the top rate for corporate income tax.

1. Individual Tax Rate-the top rate is proposed to return to 39.6% form 37%, where it has been since 2018.

2. Capital Gains & Dividends-The House bill set the target for the highest capital gains at 25%-which for 2021 covers individual filers earning more than $445,850, and married joint filers earning more than $501,600.

3. Estate & Gift Tax Exemption-The expanded estate & gift tax exemptions of the Tax Cut and Jobs Act were set to expire at the end of 2025, but the latest version of the House bill would revert the thresholds back to 2010 levels, indexed for inflation, and that would be effective at the end of 2021. That would essentially reduce in half the current $11.7 million exemption per individual.

4. Limits on Large Retirement Plans-The bill adds several provisions to curb savers from amassing large balances in tax-deferred retirement accounts. One restriction prohibits high earners in the new 39.6% bracket from making new contributions to a traditional IRA or Roth if the total value of such an account exceeds 10M. Also, the in verbiage to increase the required minimum distributions amounts.

5. Corporate Tax Rate-tax rate to increase to 26.5% from 21%.

6. Wash Sales-the wash sale rule where you can\'t take a deduction for a loss on the sale of an investment if you replaced it with the same identical investment 30 days before of after the sale would apply to currencies, commodities, and digital assets after 12/31/21.

Please be aware that these and other tax changes being considered are very much a work in progress.

Mark S. Fineberg, CPA